CARES ACT | KEY POINTS
In late March of this year, the U.S. legislature passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This $2 trillion package seeks to stabilize the economy amid the COVID-19 pandemic. In this brief, I aim to highlight some of the key provisions of the package as it pertains to individual investors and business owners.
KEY PROVISIONS APPLICABLE TO INDIVIDUALS
- Individuals have an additional 3 months to file their 2019 tax returns. This also means the deadline to fund a 2019 IRA/ROTH IRA contribution has been extended.
- Rebates for individuals of up to $1,200 ($2,400 for married couples who file jointly) and $500 per child under 17 years of age. These rebates are income-tested based on 2019 tax return data, or 2018 tax return if 2019 was not yet filed.
- If you, a spouse, or a dependent has been impacted by coronavirus, and you’re under age 59 1/2, you may be eligible to withdraw up to $100,000 from your IRA/401k without the 10% early withdrawal penalty. However it will still be counted as ordinary income for tax purposes. This income may be spread out over tax years 2020, 2021, and 2022 to lessen the tax hit. The taxpayer has up to three years to roll the dollars back into their account.
- For 2020, required minimum distributions have been waived for retirement account holders over age 72, including inherited IRA accounts. In the event you already took a required minimum distribution, you may be able to return it to the IRA.
- When a vaccine for coronavirus becomes available, it will be available at no cost to those on Medicare.
- If you have a federally backed mortgage, you may be able to contact your mortgage company and request to suspend payments for up to one year without penalty, and without a negative hit to your credit score.
- Suspension of federal student loan payments through September 30th 2020. Federal student loan interest rates have been set to 0% for 2 months beginning March 20, 2020.
KEY PROVISIONS APPLICABLE TO BUSINESS OWNERS
- $349 billion of the $2 trillion package has been dedicated to loans through the Small Business Administration. These loans aim to help cover essential business expenses such as payroll, rent, utilities, and more. The primary goal here is to help businesses keep their staff employed until the virus is contained.
- Businesses can postpone paying their share of employees’ payroll taxes.
- The Paycheck Protection Program makes available potentially forgivable loans if the proceeds are used to maintain staff and are used mostly for payroll expenses. Funding may be limited, so you should consult your business bank ASAP
TIMELY PLANNING OPPORTUNITIES
Investors have a handful of planning opportunities to consider in light of the current environment. For many clients, I am reviewing opportunities for tax-loss harvesting, IRA to Roth IRA conversions, and changes to retirement plan contribution strategy. I remain available to discuss which opportunities may be worth considering for your individual situation.
LOOKING BACK, AND LOOKING AHEAD
It was March of 2009 and I recall looking at the worsening unemployment figures and the flood of banks being taken over by the FDIC, and thinking, “how could the market ever go up given this horrible environment?” But sure enough, March 2009, the market foresaw better days ahead, and subsequently rebounded from that point—and continued to do so—over the next 11 years.
In times of uncertainty and market declines (market declines are often the result of uncertainty, in my view) I think it’s helpful to remember two things:
- the market and the economy are not one and the same (albeit, they are related), and;
- markets tend to be forward-looking
To wit, while the economy was in relatively great shape just a month or so ago, the markets began looking forward at the potential economic harm presented by this virus, and thus turned lower. What can we learn from this? When the markets do begin to rebound, the environment probably won’t feel rosy. So I would submit that when the economy is bruised and battered—which may likely occur as a result of this pandemic— the market will eventually look forward to positive news on the horizon, and begin rising higher. The hard part is there won’t be any alarm bells letting us known that we’ve begun our recovery.
It remains to be seen how much this $2 trillion package will aid in the stabilization of the economy, but I believe that this action—in addition to a very proactive Federal Reserve—will help increase our odds of a faster recovery. In the short-term, I anticipate further volatility as the markets seek out more certainty—primarily in regards to the curve of this pandemic. No one knows when the coronavirus will be under control, but it appears that social distancing, sound hand-hygiene, and safer-at-home policies are working. I really look forward to when this pandemic is behind us, but in the interim, let’s remember that we’re investors, not traders, and better days are likely ahead.
Jeff DeLarme, CFP®
Registered Principal, Financial Advisor
Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James financial advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. The information in this writing has been prepared from sources believed to be reliable, but is not guaranteed by Raymond James Financial Services or DeLarme Wealth Management and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for informational purposes only and does not constitute a recommendation.
Data gathered from text of CARES Act at www.congress.gov and the Raymond James research department.
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. DeLarme Wealth Management is not a registered broker/dealer, and is independent of Raymond James Financial Services.