CARES Act: Retirement Account Changes, Taxpayer Payments & More

On March 27, 2020, the CARES Act became law, signaling the federal government’s intention to support the American economy during the COVID-19 outbreak with a massive stimulus package for individuals and businesses. While the majority of the $2 trillion expected to be distributed through the aid package will go to businesses, those who have lost their jobs, and addressing public health concerns, there are specific provisions of the act designed to help retirees during these volatile economic times.


Required Minimum Distributions Waived

For 2020, all Required Minimum Distributions (RMDs) from IRAs and employer sponsored retirement plans are waived. Anyone who would normally need to take an RMD in 2020 can elect not to, thereby avoiding having to pay income tax on the amount that would have been withdrawn. Since 2020 RMDs would have been based on the value of a retirement account at the end of 2019, this waiver provides significant relief for those who have seen the value of these accounts decline precipitously thus far in 2020. If you have already taken some or all of your RMD in 2020 but would like to take advantage of the waiver, you may be able to “roll back” the amount withdrawn, provided it was taken in the last 60 days.

With the waiver of RMDs for 2020, some retirees may find it beneficial to convert some of their IRA assets to a Roth IRA. Assets converted into a Roth IRA will be taxed this year, but future withdrawals from the Roth IRA would not be taxed, nor would the amount be taxable to your heirs. Additionally, converting some of your IRA assets to a Roth IRA this year would reduce future RMDs.

For those feeling financial distress in these challenging times, the CARES Act also provides the ability to tap into retirement accounts even if you are not already at retirement age. If you are concerned about your financial security and would like to discuss your options for potentially accessing retirement assets to provide for your needs, don’t hesitate to contact your advisory team.


Direct Payments to Taxpayers

One of the most talked-about provisions of the CARES Act is the direct payments being made to most taxpayers. These payments will be $1,200 for single taxpayers, and $2,400 for married taxpayers filing jointly. In addition, an additional $500 will be sent to taxpayers for each dependent child under age 17. It should be noted that while 90% of Americans are expected to receive some payment, not everyone will receive a check. The benefit phases out for single taxpayers starting at $75,000 of income and for married taxpayers at $150,000.

Eligibility will be determined based on the taxpayer’s most recent tax return—so the 2019 return if it has already been filed, or 2018 if it has not (reminder that the 2019 return deadline has been delayed until July 15). For those who receive Social Security by direct deposit, or those who have had a tax refund direct deposited, payments will be made directly to those accounts. Everyone else will receive a check by mail. If you have moved since filing your return or closed your bank account, be sure to update your information with the IRS.

Finally, most of the CARES Act’s provisions are intended to provide much needed short-term financial relief to businesses and individuals in crisis. These provisions include forgivable loans to small businesses, expanded unemployment insurance, and deferral of federal student loan payments. While some of these provisions have not been as widely discussed in the media, they can provide a great benefit to your small business or family and are worth exploring further. Consult with your JNBA Advisory Team if you have questions about any of these potential benefits.


JNBA is not an accountant and no portion of the above should be construed as accounting advice. All accounting issues should be addressed with an accounting professional of your choosing.

Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from JNBA Financial Advisors, LLC.

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