Congress recently passed the Coronavirus Aid, Relief and Economic Security (CARES) Act. It provides more than two trillion dollars to state and local governments, public health institutions, businesses, and individuals, and is the largest economic stimulus in U.S. history.
While the CARES Act contains wide-ranging provisions for many industries, we’ve summarized the changes that are likely to have the biggest impact on your personal finances:
- Direct Financial Assistance
The bill provides $1,200 of financial assistance to tax filers with an adjusted gross income of less than $75,000 for individuals or $150,000 for married couples, plus $500 per child. For those that earn more than that, the payment is tapered down on income up to $99,000 for individuals and $198,000 for joint filers with no children.If you are eligible for payment there is no action required. The Internal Revenue Service will calculate and automatically send you the money.
- No Required Minimum Distributions (RMD)
RMDs will not be required in 2020.Voluntary withdrawals from retirement accounts and Qualified Charitable Distributions remain unchanged.
- Changes to “Hardship Withdrawal” Rules from Retirement Accounts
There will be no penalties for coronavirus-related early withdrawals from retirement accounts up to $100,000. There is normally a 10% penalty for withdrawals if the account owner is under the age of 59 ½. While you will still owe income tax on the amount withdrawn, the income can be realized over three tax years (2020, 2021, and 2022) to minimize the tax burden. Or, if you prefer to realize the tax in 2020 that remains an option.
- Loans from Employer-Sponsored Retirement Plans
The CARES Act temporarily increases the maximum loan from a 401(k) or 403(b) from $50,000 to $100,000 or 100% of the account balance, whichever is lower. In addition, any interest owed from the loans in 2020 is postponed to 2021.