COVID-19 Update: Beaird Harris has shifted a significant number of our team members to work remotely.
We continue to serve and care for our clients, just as we always have, and are available by phone, video or email.

Beaird Harris will be closed on Friday, July 3rd in observance of the Independence Day holiday.

10 Provisions and Planning Opportunities for Individuals in Response to the CARES Act and Recent Market Environment

April 10, 2020

Congress has passed three bills aimed at mitigating the economic impact of COVID-19 and putting money into the economy. The most recent is the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. At about $2 trillion, it’s the largest economic stimulus legislation in American history since the New Deal in the 1930s. 

1) Some Retirement Account Rules Have Been Relaxed

The CARES Act offers some help to those with retirement accounts.

  • Required Minimum Distributions (“RMDs”)
    RMDs for 2020 are suspended for certain defined contribution plans and IRAs, including Inherited IRAs, to help retirement accounts recover from stock market losses. This includes the first RMD, which individuals may have delayed from 2019 until April 1, 2020.

    If a participant has already taken his or her 2020 RMD, this distribution is now eligible to be rolled over to an IRA or an eligible retirement plan – if it can be rolled over within 60 days of the distribution.  

  • A Break for “Non-Designated” Beneficiaries
    When applying the 5-year rule for “non-designated” beneficiaries with inherited retirement accounts, 2020 can be ignored. The 5-Year Rule effectively becomes a 6-Year Rule for current non-designated beneficiaries. 
  • Hardship Withdrawals and Loans from Retirement Accounts
    Affected, eligible participants in workplace retirement plans and IRA owners can take an aggregate distribution in 2020 of up to $100,000 from all retirement accounts without incurring the usual 10% early withdrawal penalty.

    The affected participant or IRA owner (including a spouse or dependent) would need to either be diagnosed with SARS-COV-2 or COVID-19 or experiencing adverse financial consequences as a result of an event, including but not limited to quarantine, furlough, lay-offs, reduced work hours, no available childcare, business closing or reduced business hours (self-employed), or other factors determined by the Secretary of the Treasury.

    In addition, the income tax on the distributions may be spread evenly over three years or the distribution may be repaid to an eligible retirement plan within a three-year period.  

    Loan repayments for affected participants in workplace retirement plans may be delayed for one year.

    These changes will be in effect through 2020. 

2) This Could Be a Good Time to Consider a Roth IRA Conversion 
Several factors have converged to make Roth IRA conversions more attractive.

  • No Required Minimum Distributions (“RMDs”) For 2020 
    The CARES Act temporarily suspends the RMD requirement from Traditional IRAs and retirement plans. If you are  required to take minimum distributions from your IRAs, consider foregoing that distribution in 2020 unless you need the money and depend on it to meet current expenses. This will help stem losses that would be caused by taking your RMD while the market is down. With respect to Roth IRA conversions, not taking distributions from a Traditional IRA can make doing a Roth IRA conversion even more desirable because it might keep or put you in a more favorable tax bracket by reducing your taxable income. If you were already planning on a Roth IRA conversion, perhaps this will give you an opportunity to convert an even larger amount.   
  • Roth IRA Conversions While the Market is Low
    Although we are not market timers, history suggests that after a crash, there will be a significant recovery. This certainly held true for The Great Recession of 2007-2009!  Let’s say you have a Traditional IRA valued at $150,000 at its peak and today its value is $100,000. You can make a Roth IRA conversion on the $100,000 and pay tax on $100,000. The market rebounds to its pre-correction level and now your Roth IRA is worth $150,000. You just got a great bargain by paying tax on $100,000 and getting a $150,000 tax-free Roth IRA in return.  
  • Income Tax Rates are Likely to Go Up
    Most Roth IRA conversion analysis assumes that the federal income tax rate is going to stay steady for a few years at least, but the CARES Act bailout casts a shadow over that assumption. Who is likely to pay for it? It will probably be some combination of you and your heirs, people with large IRAs and retirement plans and other high-income taxpayers. Between our current deficit and the new $2 trillion bailout, it isn’t a huge leap to think tax rates will go up in the future. In addition, we are already in an historically low tax environment. In 2017, a married couple filing jointly with a taxable income of $326,600 was in the 33% tax bracket.  Thanks to the Tax Cuts and Jobs Act of 2017, today that couple would be in the 24% tax bracket. If you make a Roth IRA conversion now and income tax rates go up in the future, you will have made a Roth IRA conversion at a bargain rate. If you think tax rates will increase over the long run and specifically go up for you, then a Roth IRA conversion can be a great planning strategy for you.  
  • Roth Conversions, a Family’s Defense to the SECURE Act
    The SECURE Act, which could more accurately be called the Death of the Stretch IRA Act, took effect on January 1, 2020, and accelerates the income tax on Inherited IRAs, subject to exceptions, within ten years of the owner’s death. This could negatively impact your financial legacy. As one of our previous posts explains, the Act does away with the ability to “stretch” RMDs over non-spouse beneficiaries’ lifetimes, so suffice it to say, Roth IRA conversions could be a family’s best defense against the Act. 

3) Above-the-line Deduction for Charitable Contributions 
The CARES Act allows for a $300 above-the-line deduction for charitable contributions made to 501(c)(3) organizations for taxpayers who take the standard deduction.

The Act also relaxes the limit on charitable contributions for itemizers—increasing the amount that can be deducted from 60% of adjusted gross income to 100% of adjusted gross income. These changes go into effect beginning in the 2020 tax year.

The legislation does not provide for enhanced deductions to 509(a)(3) charitable organizations (commonly known as sponsoring organizations) or donor advised funds.

4) Deadlines Have Changed
The deadline for filing and payment of 2019 federal income taxes has been moved from April 15 to July 15, 2020. The IRS confirmed that July 15, 2020 will also be the deadline to make 2019 contributions to IRAs and health savings accounts (HSAs). Deadlines associated with contributions to workplace savings plans are not affected. The IRS has also extended the deadline to make first and second quarter estimated tax payments for 2020 from April 15, 2020 and June 15, 2020, respectively, to July 15, 2020. Stay up-to-date with upcoming cutoff and deadline dates by bookmarking to your favorites.

5) Direct Payments to Many Americans
The CARES Act includes a provision to send most Americans direct payments of $1,200 for single filers, or $2,400 for joint filers, plus $500 for each child. The amount of the payments will be reduced for those with higher incomes. For individuals filing taxes as single, the reduced amount begins at an adjusted gross income (“AGI”) of $75,000 per year and is completely phased out at $99,000. For joint filers, the reduced amount begins at $150,000 and payment is eliminated at $198,000. AGI will be determined by your 2019 tax filing (or 2018, if 2019 is unavailable). The phase out range is expanded for taxpayers with dependent children. StimulusCalculator

6) Tax Credits for the Self-Employed May be Available
The Families First Coronavirus Response Act includes help for people who are self-employed. It includes a tax credit for sick leave and family leave of up to $200 a day or 67% of average daily pay. It also allows for up to $500 a day for emergency paid sick leave for quarantine or testing for COVID-19, or 100% of average daily pay.

7) Paid Sick and Family Leave Available for More Workers
Paid leave is required for more employees by the Families First Coronavirus Response Act. These provisions apply to businesses of 500 employees or less. Businesses with 50 employees or less may be exempt from the paid leave provisions.

Full time eligible employees must be allowed up to two weeks (or 80 hours) of paid sick time:

  • At their regular rate of pay if the employee is unable to work due to quarantine or experiencing COVID-19 symptoms and seeking a medical diagnosis.
  • Or, at two-thirds their regular rate of pay to care for someone who is ill or to take care of a child whose school has been closed as a result of COVID-19.

The CARES Act caps these payments at $200 or $511 per day or an aggregate payment of $2,000 or $5,110, depending on the reason for leave.

Family leave was expanded under the Families First Coronavirus Response Act. Affected employees are entitled to up to ten weeks of leave with job protection and at least two-thirds their regular rate of pay, to recover from illness, to care for sick family members, or to care for school-age children whose school has been closed.

The CARES Act capped family leave payments at $200 per day and $10,000 in aggregate.

8) Expansion of Unemployment Insurance
The new rules ease the benefits application process, which can be done online or via telephone. Individuals can apply through their state. Each state runs its own unemployment insurance program.

The Act also eliminates waiting periods so that unemployment benefits reach affected workers more quickly. It gives states greater flexibility to address coronavirus-related unemployment, to account for employers that are temporarily closed and employees who are quarantined or who must leave a job to care for a family member. In addition, federal law does not require an employee to quit in order to receive benefits due to the impact of coronavirus.

When in doubt, contact your state for details.

9) Federal Student Loan Provisions for Borrowers and Employers

  • Federal Student Loan Payments, Interest Waived
    On March 13, the President announced that interest would be waived on federal student loans. Legislation codifying that order is retroactive to March 13. Learn more at

    The CARES Act suspends payments on federal student loans for six months. The Act waives any interest on the loans for six months as well.  The missed months of payments will be recorded as if the borrower had made a payment for the purposes of loan forgiveness programs.

    The Act makes emergency financial aid available to some students, up to the amount of the maximum federal Pell Grant for the year.

    Federal work-study payments can be made to qualifying students who have been unable to complete their work under the program due to COVID-19.

    Students who are forced to withdraw from school due to the outbreak may have the portion of their loan covering that semester canceled. Requirements to return portions of grants or loan assistance will be waived for students who had to withdraw from school as well. 

  • Income Exclusions of Employer Payments of Student Loans
    For 2020, employers may contribute up to $5,250 toward an employee’s student loans and the payment will not be taxable income to the employee. The $5,250 may also be used for other educational costs such as fees, tuition, and books.

    Self-employed individuals may contribute toward an employee’s loans, but not their own. 

10) Net Operating Losses
The CARES Act temporarily repeals the 80% income limitation imposed by the Tax Cuts and Jobs Act of 2017 for net operating loss deductions for years beginning after December 31, 2017 and  before January 1, 2021. 

For net operating losses arising in 2018, 2019, and 2020, a five-year carryback is allowed (taxpayers may elect to forgo the carryback).

These are just a handful of the strategies we are currently discussing with our clients. If you think these strategies may benefit you, please contact your advisor to discuss the logistics and any potential downsides. 

No Professional Advice, Client Relationship, or Reliance on Information

Please note that any information or content on our Website, or any forms or tools on our Website which allow you to submit information or make calculations, and your use thereof, are not intended to provide any kind of professional advice, consultation or service, including but not limited to, legal, accounting, tax, or business advice. Nor does any such information, content, forms, or tools, or your use thereof or reliance thereon, create or constitute an attorney/client, accountant/client, or consultant/client relationship. You should therefore not use our Website or reliance on any information, content, forms, or tools on our Website as a substitute for any kind of professional advice. Rather, you should consult with a licensed professional, including one employed by our Company, for any accounting or tax questions you may have. You agree that we will not be liable to you or to any third party to the extent you treat or consider any information, content, forms, or tools on our Website as constituting any kind of professional advice. The information and content, including but not limited to forms and tools, presented on or made available through our Website are made available solely for general information purposes. We, therefore, do not warrant the accuracy, completeness or usefulness of any such information, content, forms, or tools, and any reliance you place on the same is strictly at your own risk.  We disclaim all liability and responsibility arising from any reliance placed on such materials by you or any other visitor to our Website, or by anyone who may be informed of any of its content.

Our Website provides illustrative lists of services that we provide. Nothing contained on our Website shall be construed as an offer or guarantee to provide any particular services to you, nor shall anything on our Website be construed as a direct solicitation for employment by any persons, companies, or organizations. Prior results we have obtained for others do not guarantee a similar outcome.