As the current health and economic situations continues to evolve, we wanted to share two important planning updates resulting from recent legislation and policy developments:

Stimulus Payment Timeline and Details

  • The Treasury Department and the IRS announced this week that IRS will begin distribution of stimulus payments in the next three weeks.  The payments will be distributed automatically, with no action needed for most people.
  • For those who have already filed their 2019 tax return, the IRS will use this information to determine the payment amount; otherwise, the IRS will use the 2018 tax return for the payment calculation.  The payment will be deposited directly into the same bank account reflected on the latest tax return filed.
  • In the event the IRS does not have a taxpayer’s banking information on file, in the weeks ahead the Treasury plans to develop an online portal where individuals can provide their banking details and receive payments immediately rather than awaiting checks.
  • Those individuals who typically do not file a tax return will need to file a simple return for 2019 in order to receive a stimulus payment.
  • Eligible taxpayers who filed tax returns for either 2019 or 2018 will automatically receive a stimulus payment of up to $1,200 for individuals or $2,400 for married couples. Parents also receive $500 for each qualifying child.
  • Individual tax filers with adjusted gross income up to $75,000 and married couples filing jointly with adjusted gross income up to $150,000 will receive the full payment.  Payments will begin to phase out above these levels with a $5 reduction for each $100 above the aforementioned thresholds, and will be completely phased out for filers with no children whose income exceeds $99,000 (single) and $198,000 (married filing jointly).
  • Below is a link to the IRS site noting the program and additional details:

CARES Act Brings Retirement Plan Relief

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) signed into law last week brings $2 trillion in sweeping relief measures designed to provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.  This includes the following favorable temporary changes to certain provisions in qualified retirement plans.

  • Suspension of RMDs
    • The CARES act suspends all 2020 Required Minimum Distributions for all participants and beneficiaries, whether in retirement plans or IRAs.  This includes participants in active pay status, as well as any beneficiaries required to take a distribution from an inherited IRA (those beneficiaries electing to distribute inherited funds within five years of the account owner’s death may exclude the year 2020 in calculating the distribution timeline limit.)  The RMD suspension also applies to any individuals whose first RMD was for 2019 and due by April 1, 2020, provided it has not already been taken.  Those plan participants who have already taken their 2020 RMDs also have 60 days from the date of the original distribution to return the funds to their retirement account without including the distribution as income.
  • Suspension of 10% Penalty for Coronavirus Related Withdrawals
    • The CARES Act also allows plan participants younger than age 59 ½ (who would otherwise incur a 10% penalty on distributions) to obtain a plan distribution of up to $100,000 if they have been adversely impacted by Coronavirus.  The withdrawal qualifies as a penalty-free distribution if the participant, their spouse, or dependent has been diagnosed with SARSCoV-2 or COVID-19 by a CDC approved test, or if they have experienced adverse financial consequences as a result of the pandemic, including quarantine, layoff, reduction in hours, or loss of work because of lack of child care or business closing.  This provision includes self-employed individuals.  The participant may repay a portion or all of this withdrawal over three years; any balance that is not repaid may be included in taxable income stretched over three years.
  • Increase in Maximum Loan Amount
    • Typically, the loan limit for qualified retirement plans is the lesser of 50% of the account balance or $50,000. The CARES Act temporarily increases these limits to the lesser of the entire balance of the participant’s account, or $100,000.  These relaxed rules are effective for 180 days following the Act’s passage.  Qualified participants with loan payments owed between now and December 31, 2020 may delay the payments for up to one year from the original due date.

Our financial planning team is happy to assist with any questions you may have regarding the information provided above. Please do not hesitate to reach out at your convenience.