CARES ActSubmitted by Trott Brook Financial on March 31st, 2020
Last Friday, the United State Congress passed the largest financial rescue bill in the country’s history and the president signed it into law. The total package, known as the Coronovirus Aid, Relief, and Economic Security Act, is valued at over $2 trillion which amounts to about 10% of the entire economy. The scope of this fiscal deal is immense. When you start talking about trillions, it’s very difficult for the average person to wrap their mind around it. To provide some perspective, think about this:
⦁ 1 million seconds is equivalent to about 11.5 days.
⦁ 1 billion seconds is equivalent to about 31.7 years.
⦁ 1 trillion seconds is equivalent to about 31,710 years.
There are many components of the CARES Act which include direct payments to individuals, forgivable loans to businesses and financial aid for hospitals. There are a few provisions specific to retirement accounts that clients should be aware of.
First, required minimum distributions on retirement accounts have been suspended for 2020. Congress took this from the 2008-2009 playbook when a similar suspension was enacted. Remember, RMDs are calculated based on the prior year December 31st account value. This is a big deal because stock prices have sunk over 20% from those levels so far this year. This suspension will help retirement account owners avoid selling and paying taxes when prices are depressed.
For people that are still working, the CARES Act temporarily suspends the 10% penalty for early withdrawals from retirement accounts so long as it’s “Coronavirus-related.” Income taxes will still be due, however the law provides some added flexibility in paying them.
Speaking of income taxes, the filing deadline has been extended from the normal April 15th, to July 15th this year.
With everyone’s email inbox filling up with unending news updates, I’ll leave this memo short. If you have any questions about the CARES Act, or RMDs, please don’t hesitate to reach out.
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