What do I need to know about the CARES Act?

Shannon Nelson |


Congress passed the historical $2 trillion CARES Act to stimulate the US economy following the drastic impact of COVID-19. In addition to the payments and loans for American individuals and businesses, there are several elements to be aware of from a financial and tax planning standpoint.


1. Extended tax filing and payments deadline

The IRS has extended the 2019 tax filing deadline to July 15, 2020. However, if you are expecting a refund, those are still being processed and paid. This extension applies to IRA and HSA contributions for 2019 as well. 


2. Suspension of 2020 Required Minimum Distributions (RMDs)

Required Minimum Distributions for qualified plans have been suspended for 2020. This suspension also includes individuals who postponed their first distribution from 2019 to take before April 1st in 2020. Those individuals do not have to take their 2019 or 2020 RMDs. This suspension allows retirement accounts that were adversely affected by the recent market drop time to recover. Required distributions from inherited IRAs have also been suspended for 2020.

It is anticipated that these changes may lead to more consideration of Roth conversions in 2020. While you cannot typically convert your RMD to a Roth IRA, taking advantage of a conversion while RMDs are suspended and tax rates are historically low may be appealing for some households.


3. Retirement Plan Withdrawals for COVID-19 Related Needs

The CARES Act waives the 10% penalty for early withdrawals from retirement plans prior to age 59 ½ up to $100,000 for those directly impacted by the Coronavirus. This withdrawal stipulation allows three years to either pay the taxes on the withdrawal, or to replace the withdrawn funds without owing taxes. Qualifications for this waiver include:

  • Positive diagnosis of you, your spouse, or your dependent with Coronavirus
  • Adverse financial consequences as a result of:
    • Being quarantined
    • Being furloughed or laid off
    • Having reduced hours
    • Being unable to work due to lack of childcare
    • Closing or reduced hours of a business owned or operated by the participant
    • Any other factor determined by the Secretary of the Treasury


4. Increased Qualified Plan Loans

Loans from qualified plans are temporarily allowed up to the lesser of $100,000 or 100% of vested account balance -- an increase from the usual allowance of $50,000 and 50%, respectively. This temporary increase may be taken for 180 days from March 27, 2020 when the bill was passed. Additionally, if you currently have an outstanding loan that will come due in 2020, you have an additional year to pay it back.


5. Charitable Donations

If you are itemizing your deductions on your 2020 return, the 60% adjusted gross income limitation for charitable deductions is suspended, allowing you to deduct as much as 100% of your 2020 AGI. For those that don’t itemize, you can take an above-the-line deduction of up to $300 for charitable cash contributions to qualified 501(c)(3) organizations.


6. Student Debt Relief

The CARES Act also automatically suspends federal student loan payments, including interest, through September 30, 2020. It does not include federal loans held by private lenders.


For more information, or to better understand how these changes might impact you, please contact your advisor at Heck Capital as well as your qualified tax advisor/CPA.


Authored by Michael Bogard, CFA on April 9th, 2020.


About the Author: Michael Bogard, CFA is a Business Development / Client Relationships Senior Associate at Heck Capital Advisors. Michael earned the right to use the Chartered Financial Analyst® (CFA®) designation after completing the program, fulfilling the work experience requirements, and gaining acceptance as a member of the CFA Institute. The Chartered Financial Analyst® (CFA®) charter gives a strong understanding of advanced investment analysis and real-world portfolio management skills. CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.

Heck Capital is an independent, Registered Investment Advisory Firm providing comprehensive investment management, personalized advice, and strategic financial guidance since the 1950s. We serve goal-driven individuals, families, established institutions, non-profit organizations, and foundations/endowments; striving to help our clients achieve their investment objectives, helping to simplify their financial lives, with the goal to create lasting legacies.