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CARES Act Briefing

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On Friday, March 27, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law.  There is no shortage of articles summarizing details of the 880 page Act, so we will focus on those areas most likely to impact our clients and their families.

  1. Required Minimum Distributions (RMDs) are no longer required in 2020.  Individuals currently required to take an RMD from an IRA, Qualified Plan, and even an Inherited IRA, can forego the 2020 RMD. While this strategy may only apply to a select group of people, the tax savings opportunity could be significant. There are several key considerations when determining if this strategy is right for you, and we will work with our clients to apply them as appropriate.
    1. Where is your 2020 cash flow going to come from?  Cash savings, taxable accounts, and even home equity lines are a few of the many possibilities.
    2. What other planning opportunities arise if you don’t take a RMD this year?  Selling low basis securities at favorable capital gains rates (potentially 0%) and Roth conversions are some of the most common strategies. These allow you to utilize some of the lower tax brackets that can become available when your RMD is delayed.
    3. What if I’ve already taken part or all of my 2020 RMD?  For an account that you own you can either do a 60-day rollover (assuming you haven’t done one in the previous 365 days) or a Coronavirus-Related Distribution Rollover, which requires you to meet certain criteria.  Unfortunately for inherited IRAs there is no “do over” option.  If you’ve taken your inherited IRA already this year you must keep it and report the taxable income. 

  2. Make sure the IRS has the correct address on file to ensure you receive your Rebate Recovery check.  You can update your address with Form 8822, available on the IRS website at:  The Treasury will send as many of the payments as possible using direct deposit information on your most recently filed tax return.  Social Security recipients will receive their cash in the same manner as their social security benefits. If a direct deposit gets rejected, they will send a paper check.  Your last resort will be calling an 800 number to track down your check - that sounds dreadful!   

  3. Most Federal student loan payments are deferred through September 30, 2020. No interest accrues during this time, and this time counts towards any loan forgiveness you may be eligible for. Your federal student loan servicer will suspend all mandatory payments without any action from you. If you’re making any voluntary additional payments, you should contact your student loan servicer and suspend voluntary payments

  4. Consider accelerating or delaying the filing of your 2019 tax return to receive a Rebate Recovery Check. Rebate Recovery checks begin to be phased out for single filers at $75,000 of Adjusted Gross Income (AGI) and $150,000 for Married Filing Joint filers.  Rebate Recovery checks will be based on your most recently filed tax return. 
    1. If your income declined below the income threshold from 2018 to 2019 or you’ve welcomed a child you will want to file your 2019 return ASAP.
    2. If your income increased above the income threshold from 2018 to 2019 you want to delay filing. 
    3. If your income exceeds the threshold in 2018/2019 but subsequently falls below the threshold in 2020 you will be able to claim a refundable credit when you file your tax return next year in lieu of a current check. This will be a popular option for those that skip their 2020 RMD.

  5. Small business owners should work directly with a Small Business Administration lender to determine if they qualify for the Paycheck Protection Program.

Please reach out to your Foster & Motley team to discuss your individual circumstances in greater detail as there are many more provisions of the CARES Act that could impact you or your family.