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CARES Act Expanded Access To Retirement Funds & Federal Student Debt Repayment Relief

Updated: Mar 31, 2021

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. This is a $2 trillion economic relief plan designed to provide assistance to over 90% of Americans.

The CARES Act has expanded opportunities to access funds from retirement accounts, including employer-sponsored retirement plans. The law also allows for federal student loan payments to be suspended through the end of September 2020, with 0% interest. We've included further information on these changes below as well as a number of other details on tax changes, stimulus payments, and insurance applications that  may be significant to you during this pandemic.

If you have questions on how the CARES Act applies to you, please reach out to one of our team members.

Retirement Account Distributions & Loans

Required minimum distributions (RMDs) are the amount required to be withdrawn annually from an IRA after age 72 or from an Inherited IRA starting with the year after inheritance (provided that the Inherited IRA was inherited prior to December 20th, 2019). The CARES Act removes this requirement for 2020 entirely. Individuals who would have otherwise been required to withdraw their RMD in 2020 are no longer required to take a withdrawal. 2020 RMD's are not pushed into 2021, and the 2021 RMD remains unaffected. This is not a suspension but a complete waiver.

For IRA accounts only: If you have already taken all or part of your RMD in 2020, you do have 60-days from the withdrawal to roll those funds back into your IRA. If the withdrawal can qualify as a coronavirus-related distribution, you have 3-years to roll funds back into your account. Read on to learn more about what defines a coronavirus-related distribution. If a withdrawal from an Inherited IRA has already occurred in 2020, it cannot be rolled back into the Inherited IRA.

We anticipate that NorthAvenue clients will be most impacted by this change to their 2020 RMD. We are reaching out to clients who may be impacted now by this change. We also plan to discuss this further with all clients who it may apply to when we meet to review 2020 tax projections later this year.

The bill created a new type of retirement account distribution, called a Coronavirus-Related Distribution.

A coronavirus-related distribution is made to an individual: (a) who is diagnosed with COVID-19, (b) whose spouse or dependent is diagnosed with COVID-19, or (c) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury Secretary.

A coronavirus-related distribution is a distribution up to $100,000 from an IRA, employer-sponsored retirement plan, or a combination of both. This distribution can be made any time in 2020, starting January 1st.

There are several tax benefits that apply to qualifying distributions.

  1. Distributions are exempt from the 10% penalty that is otherwise incurred when the taxpayer is under age 59 ½.

  2. Distributions can be repaid back into your account over 3 years. Individuals typically only have 60 days to replace pre-tax retirement funds after a withdrawal in order to avoid tax on the withdrawal and keep funds within their pre-tax account. With a coronavirus-related distribution, repayment can be made during the three year period following the withdrawal date.

  3. If the distributions are not repaid, the income is taxable, but the income can be spread over 3 years to spread out the tax impact. By default, the income from a coronavirus-related distribution is divided equally over 2020, 2021, and 2022. However, a taxpayer can elect to include all of the income in 2020, if they desire.

  4. Mandatory withholding is not required. While distributions from an employer-sponsored retirement plan are typically subject to mandatory Federal withholding of at least 20%, coronavirus-related distributions are exempt from this rule.

Accessibility to 401(k) and 403(b) account funds has also been expanded. The loan limit has been increased from $50,000 to $100,000. Individuals can now take the maximum of $100,000 or 100% vested balance from their employer-sponsored retirement plan as a loan. When you take a loan from your 401(k), you are required to make payments back into your account. At this time, for loans originating in the next 180 days from March 27th, all would-have-been required payments in 2020 will be granted a 1-year payment extension.


Relief from Federal Student Loan Repayment

Federal student loan payments can be voluntarily suspended through September 30, 2020. During this suspension period, no interest will accrue on the debt.

Even if you choose to suspend your payments, the payments that would have been made during the suspension period will still count toward loan forgiveness as qualifying payments. You don’t lose any time toward loan forgiveness by suspending payments!

The original guidelines were clear that the payment suspension was voluntary, and in order to take advantage of it, you had to take action and contact your loan servicer. However, we now see that the majority, if not all, loan servicers (FedLoan, Navient, Great Lakes, EdFinancial, Mohela, etc.) have applied or plan to apply 0% interest and administrative forbearance to all federal student loan repayment.

If you are making federal student loan payments, we encourage you to visit your loan servicer's website to confirm how they are handling this change to repayment. We easily found each loan servicer’s COVID-19 information page by doing a Google search of  “loan servicer COVID”.

The CARES Act does not apply to private student loans.


Other Items of Note in the CARES Act

Up to $300 of charitable contributions made in 2020 are now deductible on 2020 tax returns, and this deduction is available to taxpayers who take the standard deduction and do not itemize deductions.

Net operating losses that occurred in 2018, 2019, or 2020 can now be carried back, up to 5 years. This can allow companies to reduce prior year tax bills through amending prior year tax returns in order to claim a refund and therefore provide further liquidity.

Individuals receiving Medicare benefits will receive the COVID-19 vaccination at no cost, when available. For individuals with a high-deductible health plan, COVID-19 testing and telehealth services will be covered before reaching their deductible.

The definition of qualified medical expenses has expanded, for withdrawals from HSA and FSA accounts to include over-the-counter medication.


Get Your Stimulus Payment

TurboTax has created a calculator to help you calculate what your stimulus payment will be. Check out their 2020 Economic Impact Payment Calculator.

We have received a number of questions on how the stimulus payment will be received by eligible Americans who have not been required to file tax returns in the past, because their taxable income level did not require them to do so.  On the same page as the TurboTax calculator linked above, TurboTax offers an easy way to give the IRS an up-to-date mailing address and direct deposit banking information. Scroll down to the section titled, “What do I need to do to get my stimulus payment?”, and select the Register now button.

The IRS will be developing their own web-based portal, but it has not yet been released.


Apply for Life & Disability Insurance Mid-Pandemic

Low Load Insurance Services (LLIS) is an independent insurance agency that has assisted many of our clients with putting in place new life, disability, and long-term care policies. LLIS has recently fielded many questions about whether medical exams are being waived or delayed due to the social distancing recommendation and shelter-in-place orders. At this time, many insurance companies have accelerated and simplified their underwriting process for new insurance policies.

They have put together a summary of available options for applying for life and disability insurance amidst the challenges posed by COVID-19. Check it out here.

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