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Do You Understand The Cares Act And How It May Impact You?

The Coronavirus Aid, Relief and Economic Security Act is a $2 trillion dollar stimulus package meant to provide financial relief to individuals, families and small businesses.  I have been receiving many questions regarding how this will impact my client's financial plans.  Here are some highlights of this package:

  • The plan provides for up to $1,200 for each adult and $500 for each child under 17.  The exact amount will depend upon information provided in your most recent tax filings, either the 2018 or 2019 tax returns.  If you have an adjusted gross income of up to $75,000 ($150,000 for married filing jointly), you should be eligible for the full amount of the stimulus check. The payment will be made in the format that is on file with the IRS for the last tax return that was filed.  If you received a refund via direct deposit, your check will be deposited in your bank account. If you paid by a paper check, you should receive a check in the mail.
  • If you have just lost your job, and would not qualify for the tax stimulus check if your most recent tax filing showed a higher adjusted gross income that was allowed under this Act., but you may see it when you file your 2020 taxes in 2021 via a tax credit.  You would not, however, be entitled to receive a check this year, which is unfortunate because these are the people who need this the most!
  • These payments are not considered taxable income, and will not impact your eligibility for certain other government programs and benefits.  
  • Unemployment benefits will be increased by $600 weekly for four months through July 31, 2020, and this bill provides benefits for those who were previously ineligible for unemployment, including part-time employees, freelancers, independent contractors and self-employed individuals
  • Unemployment income is, however, taxable income, so make sure you have taxes withheld so there are no surprises when you file your 2020 taxes in 2021.
  • Required minimum distributions (RMD's) are waived for 2020.  This includes traditional as well as inherited IRA's of those over 72 under the SECURE Act.  This waiver applies to those taking withdrawals and those who would otherwise start taking distributions in 2020 based on the SECURE Act rules.
  • Withdrawals from your 401K or 403(b) up to $100,000 will not be subject to the 10% penalty.  Income attributable to these distributions would be subject to tax over three years, and you may re-contribute the funds to an eligible retirement plan within three years without regard to that year's cap on contributions.
  • Student loan loan interest is waived on all federally held student loans through September 30, 2020, and student loan payments are also suspended for this time period.  The borrowers will not lose this time in counting toward loan forgiveness under income driven repayment plans or Public Service Forgiveness Plans.  This will free up cash that normally would be used to make student loan payments, and is an excellent opportunity for those with available funds to use this money to invest in their portfolio or establish an emergency fund.

The tax deadline is extended to July 15, 2020.  In addition, this extends the time you can contribute to your traditional or Roth IRA, or HSA savings accounts.

Things are changing so fast with the SECURE Act and the CARES Act, but there are many opportunities to use these benefits to begin savings toward your goals, and to start or review your financial plan.  It is important to consult with a financial adviser to make sure you understand these changes, and take advantage of the opportunities available to you.  

Please contact me if you would like to set up a call or a meeting to get you on the right track.

About the Author

Patti Hughes is a Chicago Fee-Only Financial Planner.  Lake Life Wealth Advisory Group provides comprehensive and objective financial planning, retirement planning, and investment management to help clients organize, grow and protect their assets through life’s transitions.  She is a fiduciary, and does not sell products or earn commissions, so she truly acts in the best interests of her clients.