The largest stimulus package in American history, called the CARES Act, has been passed to provide relief for individuals and small businesses. While there are many items included in the $2.2 trillion piece of legislation, the following are some important provisions specific to financial planning:
Read on for a brief summary of each of these benefits.
To prevent you from having to take a distribution during an unfortunate time, the RMDs for 2020 have been waived. Not only is this waiver for all employer plan and IRA owners, it also applies to beneficiaries of inherited accounts.
Also included in the waiver are RMDs for individuals who turned 70½ in 2019 and were waiting to take their first distribution by their Required Beginning Date (Apr. 1, 2020). If you fall into this category you will not have to take a 2019 nor 2020 RMD.
Generally, individuals under the age of 59 ½ who take a distribution from a qualified account* are required to pay a 10 percent early withdrawal penalty in addition to ordinary income tax on the distribution. There are certain exceptions that waive the early withdrawal penalty.
With this Act, individuals can withdraw up to $100,000 penalty free for coronavirus-related distributions from their qualified accounts. A coronavirus-related distribution is made by an individual:
Note: Plan administrators and IRA custodians will rely on your self-certification of meeting at least one of these requirements.
For coronavirus-related distributions (see RMD section), the tax liability will be spread evenly over a 3-year period. Individuals can elect to include all of the income from the distribution on their 2020 tax return.
For those who want to avoid the tax payments and would rather repay the distributions taken, individuals can make one or more contributions up to the total amount taken over a 3-year period starting the day after the distribution is received. These contributions will be in addition to the regular contribution limits.
Note: This means the usual 60-day rollover timeline and the once-per-year rollover rule will not apply for coronavirus-related distributions.
Typically, plan participants can take a loan up to the lesser of $50,000 or 50 percent of their account value. For a 180-day period beginning from the enactment of the Act, participants impacted by the coronavirus (as defined in the Early Withdrawal Penalty Waived section) will be able to take a loan from their employer plan up to the lesser of $100,000 or 100 percent of their vested account value.
The stimulus package allows student loan borrowers a six-month break from payments from April through September. During this time, no interest or penalties will be incurred. The ability to suspend payments is for federal loans only and does not apply to private student loans (although private lenders may be individually offering relief for borrowers).
*Qualified account refers to investment plans funded by pretax income, usually in the form of a contribution to a retirement account. Funds used in a qualified account do not become subject to taxation until the investor withdraws them.
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The Alaska USA Financial Planning & Investment Services program is offered through CUNA Brokerage Services, Inc.*, a broker/dealer focused on serving credit union members. CUNA Brokerage Services, Inc. is an affiliate of CUNA Mutual Group.
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