The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27th to provide economic stimulus to individuals, businesses, and hospitals in response to the COVID-19 pandemic and the negative impact it has had on the economy.

This article will share insight on the key provisions—such as direct payments to individuals, special rules for retirement account distributions, relief for student loans and extended unemployment benefits—which we believe may be impacting our clients the most and some related planning opportunities.

1. Direct Payments to Qualifying Individuals[1]

Can I expect to receive a direct payment from the government and for how much?

As you’ve heard by now, there will be tax rebates of $1,200 ($2,400 for married filing jointly) to individual taxpayers with an adjusted gross income of $75,000 ($150,000 for married filing jointly), plus an additional $500 for each qualifying dependent. If your income exceeds these thresholds, the benefit will be reduced by $5 for every $100 in excess of these limits. Payments will be deposited directly into bank accounts for individuals that have direct deposit information on file with the IRS and checks will be issued to all other taxpayers.  In the coming weeks, Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online, to expedite taxpayers’ payments.  See irs.gov/coronavirus for further details.

If you are eligible to receive a payment, we recommend prioritizing these payments in the following order:

1. Meeting monthly expenses
2. Saving the cash if your income is at risk
3. Applying it toward debt with high-interest rates
4. Investing it in your retirement or taxable accounts

2. Retirement Account Distributions

How does the CARES Act impact my 2020 Required Minimum Distribution (RMD)?[2]

Diving in deeper, the CARES Act suspends RMDs from traditional and inherited IRAs for 2020. We see this as being beneficial for most individuals, as 2020 RMDs are calculated based on the market values of your accounts on December 31, 2019, which are most likely higher than current market values.

If you are set up to receive monthly distributions to meet your annual RMD requirement, your Atlas Wealth Management Advisor has already or will be reaching out to discuss whether you’d like to suspend these distributions for the remainder of the year. We also recommend you consult your tax advisor before making an election to stop distributions for 2020.

If you were not yet age 70 ½ in 2019, your RMDs will not begin until you reach age 72 (this was a change from the SECURE Act which passed late in 2019). Under the new legislation of the CARES Act, all 2020 RMDs, even for those 72 and older, are NOT required.

Normally RMDs are not allowed to be converted to Roth IRAs. However, because RMDs are suspended, 2020 may be a good time to take a distribution anyway and convert it to Roth dollars. Contact your Wealth Management Advisor to determine whether this may be a good strategy for you.

Additionally, if you are charitably inclined and at least age 70 1/2, you may still make qualified charitable distributions (QCDs). Although 2020 QCDs will not count toward meeting an RMD, making a charitable contribution directly from your IRA provides the tax advantage of lowering your Adjusted Gross Income.

What if I need to take an early distribution from my retirement account?[3]

Coronavirus-related distributions (CVDs): Individuals have the opportunity to distribute up to $100,000 from an IRA or employer-sponsored retirement plan (e.g. 401(k) or 403(b) plans) for coronavirus-related purposes. Individuals under 59 ½ that take advantage of this provision will not be subject to the 10% early distribution penalty. The mandatory 20% withholding for distributions is also suspended during this period, however, these distributions will still be taxable to you. Taxes owed on coronavirus-related distributions may be paid over a three year period (2020, 2021 and 2022), and you have the opportunity to re-contribute all or part of the amount to the account over three years.

Loans from an employer-sponsored retirement plan: The CARES Act increased the maximum amount that can be borrowed from an employer-sponsored plan between March 27, 2020, and the end of the year. Normally, if your plan permits loans, the maximum you are allowed to borrow is the lesser of $50,000 or 50% of the vested account balance. Under the CARES Act, the maximum has been increased to the lesser of $100,000 or 100% of the vested account balance.

In respect to CVDs and loans from employer-sponsored plans, your distribution must be corona-virus related. The criteria to qualify for these distributions include:

• You, your spouse or dependent were diagnosed with COVID-19
• You experienced adverse financial consequences as a result of being quarantined, furloughed, laid off or having work hours reduced due to COVID-19
• You were unable to work due to lack of child care as a result of COVID-19

3. Relief for Student Loans[4]

Am I eligible to stop making payments on my loans for the next three months?

That depends…

For Direct Loan borrowers, your requested payments will be suspended for the next three months AND interest will not accrue during this timeframe. Although payments are not required, you can still make payments during this time if you wish. If you currently have no outstanding interest on your loans and have the ability to make payments right now, this may be a good opportunity to make payments on the principal balance.  This will reduce the amount of future interest owed. Please note that if you have outstanding unpaid interest on your loans, payments made during this timeframe will be credited toward the outstanding interest.

Concerning private loans, FFEL Loans, Perkins Loan, HEEL or HRSA loans, you will still be required to make expected payments. If you cannot make these payments due to reasons related to coronavirus, you should contact your loan servicer to determine if you are eligible for forbearance or other payment relief.

I’m using an IDR program, is there anything additional I need to do?

If you are using an income-driven repayment (IDR) program through the federal government, you are still required to complete your annual recertification during this time. Failure to recertify will have financial consequences, so it is important that you confirm when your recertification is due by logging in to studentaid.gov.

It’s unclear if the loan servicers will be processing requests for the re-calculation of payments due to lost income during this period. If you experience a drop in income, you may want to consider recertifying early, as that may extend additional reduced payments to you beyond the three months. 

Finally, if you are in an IDR and/or also taking advantage of the Teacher Loan Forgiveness or Public Service Loan Forgiveness Programs, you should take advantage of not making payments during this timeframe. The waiver of interest and suspension of payments will likely cause borrowers to have less debt discharged than previously anticipated. For borrowers expecting a tax liability from discharged debt, this should slightly reduce that expected liability, although the amount is likely negligible.

4. Extended Unemployment Benefits[5]

I’m self-employed, do I now qualify for unemployment insurance?

Normally unemployment benefits would not be applicable for self-employed individuals. Under the new legislation, the Department of Labor has provided states broad flexibility to temporarily expand eligibility for unemployment benefits.⁵ Some states, such as New York, are deeming self-employed individuals as independent contractors and eligible for unemployment benefits upon meeting certain criteria. You can visit the Career One Stop site[6] to see how you might now qualify under the more flexible criteria for your specific state.

For those who are receiving current benefits, or are filing new claims, you may be eligible for up to 39 weeks of benefits, and an additional $600/week until July 31, 2020 (with payments expected to begin in New York on April 5, 2020).  See your specific state’s unemployment website for further details.

If you would like to further discuss the implications of these or other CARES Act provisions, please reach out to your Atlas Wealth Management Advisor, to discuss your unique situation.

Robert Palmer, CFP®

Director of Financial Planning

Atlas Private Wealth Management is not responsible for the maintenance or content managed on any third party websites or source materials referenced therein.

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[1] H.R.748 – 116th Congress (2019-2020): CARES Act, Sec.2201
[2] H.R.748 – 116th Congress (2019-2020): CARES Act, Sec.2203
[3] H.R.748 – 116th Congress (2019-2020): CARES Act, Sec.2102
[4] H.R.748 – 116th Congress (2019-2020): CARES Act, Sec.3513
[5] U.S. Department of Labor. New Guidance on Unemployment Insurance Flexibilities during the COVID-19 Outbreak. Press Release. March 12, 2020.
[6] Career One Stop Unemployment Benefits Finder