By Alynne Zielinksi, MBA, CFP®, CDFA - Manager, Financial Planning
In response to the Covid-19 Pandemic, Congress passed and the President signed into law the CARES Act. The significant provisions regarding your finances are discussed here.
Recovery Rebates. You will receive a refundable income tax credit against 2020 income of up to $2,400 for married couples filing jointly. All other filers will receive up to $1,200. The amount increases by up to $500 for each child under age 17. The credit will be phased out by $50 for every $1000 over the adjusted gross income (AGI) thresholds. See Table 1.
Regular Unemployment Compensation increased by $600 per week. The benefit period for unemployment is now 39 weeks and you no longer wait one week before receiving benefits.
Coronavirus related retirement account distributions. The CARES Act will allow a penalty-free withdrawal of up to $100,000 per tax year from your retirement accounts for any person impacted* by the coronavirus.
Required Minimum Distributions. The CARES Act has waived RMDs for 2020. This includes distributions that had to be taken by April 1, 2020 and Inherited IRA RMDs.
Qualified Plan Loans. If you are a person impacted* by the Corona Virus, the CARES Act has increased the amount you may borrow from your 401(k) from the lesser of $50,000 or ½ of your 401(k) balance to the lesser of $100,000 or your full vested amount. Any outstanding loans with repayment due by December 31, 2020 have been delayed for one year.
New $300 above the line deduction for charitable contributions. If your contribution is in cash, to certain types of organizations, not to a donor-advised fund and you choose not to itemize deductions, then you can claim this.
Payments for Federal Student Loans deferred until September 30th, 2020. Interest will not accrue during this timeframe. All involuntary collection related to the loan will be suspended as well. This includes wage garnishing, reduction of tax refund, reduction of other federal benefits and any other involuntary collection activity. The deferral will not have an impact on your credit rating or your ability to apply for loan forgiveness or loan rehabilitation in the future. Employers may exclude loan repayments from compensation.
*A person is deemed impacted by the coronavirus if any one of the following is true:
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