The Coronavirus Aid, Relief and Economic Security (CARES) Act has been signed into law. The $2 trillion legislation is intended to provide a boost to everyone impacted by the COVID-19 pandemic, which is, well, everyone.

It probably feels impolite to ask “what’s in it for me?” so in a rare two-part series (one for every $1 trillion), we’ll go ahead and answer for you.   

Immediate relief

Let’s breathe a collective sigh of relief. The tax deadline has been moved back to July 15 (federally, and in 34 states, including Minnesota). This is automatic, with no extension required and no penalties incurred. But this is more than just another procrastination opportunity. Contribution deadlines for eligible accounts, including IRAs and HSAs, have also been pushed back.

Of course, the marquee provision of the bill is a one-time cash payment in the amount of $1,200 for individuals, $2,400 for couples and $500 for every child. The amount begins to phase out depending on adjusted gross income (AGI), starting at $75,000 for single-filers and $150,000 for couples filing jointly, with a complete phase out at $99,000 and $198,000, respectively. The amounts are based on 2019 tax returns, or 2018 returns for those who have not completed their 2019 returns.

If your income was higher in 2019 than in 2018, consider holding off on filing your tax returns, as there is no “claw back” provision requiring you to pay back the money based on 2019 returns. If you anticipate being on the cusp of the cutoff in 2020, consider taking steps to reduce your AGI this year.

A reprieve from required minimum distributions (RMDs)

2020 RMDs were based on account values from 2019, which hardly seemed fair given what those accounts are worth today. As such, RMDs are suspended for IRAs and defined contribution plans (including beneficiary plans) for 2020. Unless you need the money for cash flow purposes, we recommend leaving it to avoid an unnecessary tax burden.

If you already took your RMD, there are some options as well. Be sure to talk with your advisor about the best options if you have already received an RMD for this year.

Enhanced accessibility

For those who have been personally and directly impacted by COVID-19, it is possible to withdraw as much as $100,000 from a 401k or IRA without penalty. What’s more, the tax liability from the withdrawal can be spread out over three years, and the money can be put back into the account over that same time frame without penalty.

This benefit is limited to those with a COVID-19 diagnosis or diagnosis in the immediate family, those who have experienced a change in work circumstances (job loss, loss of business etc.) as a result of the disease, or who are unable to find childcare and cannot work for that reason. Further, it might not be wise to defer tax liability if you are likely to be in a higher income tax bracket next year.

It’s a familiar refrain, but these are complicated matters and even the authors of the bill are working to clarify its intent. This is a great time to reach out to your advisor and ask what the implications of this legislation might be for you and your retirement goals. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

This article was originally published in the Pioneer Press. You may view the article here.

Bruce Helmer

Bruce Helmer

Co-Founder, Financial Advisor and Author, Speaker and Host of the "Your Money" Radio Show

Series 7 & 63 Securities Registrations,1 Series 66 Advisory Registration, † Insurance License Bruce has been in the financial services industry since 1983 and is one of the founders of Wealth Enhancement Group. Since 1997, he has hosted the “Your Money” radio show, a weekly program that focuses on delivering financial advice in a straightforward, jargon-free manner. Bruce also hosts with the "Mid-Morning" crew on WCCO-TV each Tuesday morning to...Read More