A lot has changed in 2020 due mostly to the COVID-19 global pandemic – and financial planning is no exception. Understanding the programs and amendments under the CARES Act is imperative in knowing what benefits may be available now and moving forward. But trying to keep up with the developments of major legislation over the past several months has not been easy for many individuals and businesses.
Let’s go over what we know so far…
In December 2019 we saw major changes relating to funding Individual Retirement Accounts and Required Minimum Distributions (RMDs) under the SECURE Act. Prior to this legislation, workers past age 70 ½ were not allowed to contribute to an IRA but now can. In addition, normal
RMDs for individuals under the SECURE Act were changed from beginning at age 70 ½ to age 72. Non-spouse beneficiaries not qualifying for an exemption, must accelerate distributions over a 10-year period versus their own life expectancy.
The CARES Act further modified these provisions to allow a waiver of the RMD under most circumstances for normal distributions after January 31, 2020 through December 31, 2020. The waiver also applied to RMDs for inherited IRAs if not already taken. This was further modified
on June 23 to allow a repayment of all RMDs, including inherited IRAs if returned by August 31, 2020. For those that can return their RMD or have already waived the RMDs, a tax planning opportunity may be worth exploring with your trusted financial advisor. RELATED: Retirement Plan Options
Economic Impact Payments
Part of the CARES Act provided support through the Economic Income Payment (EIP), or “stimulus payment.” The IRS provided this relief in filing with a corresponding delay in payments to July 15 for the tax return and for Q1/Q2 tax estimates. The EIP may be contingent
on the filing of your 2019 return if you did not otherwise qualify based on 2018. While a significant number of payments have been made, some are still being processed. Those that might not have qualified based on the prior filings, may still qualify when filing the 2020 return.
Support for workers through the Federal Pandemic Unemployment Compensation program has provided another bridge to cash flow impacted by layoffs, furloughs or firings. This includes an additional 13 weeks to 39 weeks of benefits, a federal amount of $600/week through the end of
July and coverage for self-employed individuals impacted by COVID. This is an important development not before available. RELATED: CARES Act
PPP – Business Relief
These various provisions are ongoing, including funding of PPP loans through the Small Business Administration. This loan program, qualifying for forgiveness under certain circumstances, was established to serve as a stop gap for businesses impacted by lost revenues due to government closures to slow the virus spread. To qualify for the forgiveness, the original spend period was 8 weeks at 75% of payroll. Under the PPP Flexibility Act of June 5, 2020, the period was extended to 24 weeks and 60% of payroll. RELATED: CARES Act Provisions & Timelines
As these programs evolve and as individual situations are impacted, the call for being proactive versus reactive can make an impactful difference in navigating the outcome. Reaching out to your trusted advisor, or starting a relationship with one, can be a good first step.
RELATED CONTENT: Options in Financial Planning Due to COVID-19 (webinar recording)
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