The CARES Act Following Market SCARES Panic
How Can the CARES Act Help Those Facing Economic Losses
Rapid market drops and fears of a recession set Congress into quick action to pass the massive “Coronavirus Aid, Relief, and Economic Security” (CARES) Act recently.
It was a fast response to alleviate the impending economic downturn. Some might feel that it was just as important to ease the fears of the American people and investors. Just looking at the headlines or social media, you know people have anxiety and they are scared for their health, their finances and the future.
Look, I understand fear. Those close to me know that I’ve personally survived a scare that would give any child nightmares for years. There was an emotional impact that took a longtime to heal. But there are other scares in life that last but a moment and are soon forgotten.
In our household, at any given moment, you need to be prepared to have a seven year-old unexpectedly jump out from behind a door and yell “BOO!!!”. Barely avoiding cardiac arrest, you spend the next few minutes trying to lower your heart rate, while your daughter giggles uncontrollably! Eventually, you have to just accept that she's going to do what kids do and you move on.
Health issues aside, that’s how I see this recent market drop. Collectively, fear has caused many investors to panic due to the sudden shock of circumstances. Naturally, markets run cyclically. We could have eventually expected a market correction, and possibly even a slight recession. But what happened was a knee jerk reaction, leading to a swift response from the government.
So, what are the provisions that have helped calm some of the market panic and how might it help your personal situation?
Stimulus Check Details. Americans can expect a one-time direct payment of up to $1,200 for individuals (or $2,400 for married couples) with an additional $500 per child under age 17. These payments are based on the 2019 tax returns for those who have filed them and 2018 information if they have not. The amount is reduced if an individual makes more than $75,000 or a couple makes more than $150,000. Those who make more than $99,000 as an individual (or $198,000 as a couple) will not receive a payment. 
Business Owner Relief. The act also allocates $500 billion for loans, loan guarantees, or investments to businesses, states, and municipalities. 
Your Inherited 401(k)s. People who have inherited 401(k)s or Individual Retirement Accounts can suspend distributions in 2020. Required distributions don’t apply to people with Roth IRAs; although, they do apply to investors who inherit Roth accounts. 
RMDs Suspended. The CARES Act suspends the minimum required distributions most people must take from 401(k)s and IRAs in 2020. In 2009, Congress passed a similar rule, which gave retirees some flexibility when considering distributions.  
Withdrawal Penalties. Account owners can take a distribution of up to $100,000 from their retirement plan or IRA in 2020, without the 10-percent early withdrawal penalty that normally applies to money taken out before age 59½. But remember, you still owe the tax. 
So, with a 2 Trillion price tag, Americans might see some economic relief despite the circumstances. Yet there’s still a strong possibility of a recession ahead. The important thing to remember, regardless of market fluctuations or even a recession, those that have a strong financial plan in place tend to do much better than those that react out of fear.
Now, more than ever, it’s important to have a financial planner that can help you create a personalized financial strategy. And just as critical, is the financial advisor’s role as a trusted counselor to help alleviate the fears. These are the times it pays to have an advisor who can quell irrational reactions that may permanently put finances at risk.
Krista McBeath is an Investment Advisor, Chartered Financial Consultant, a Licensed Insurance Advisor, a Fiduciary, and an experienced tax advisor who specializes in financial planning, investments, and insurance. McBeath Financial Group’s Technology Empowered Advisor Method (TEAM) is a financial planning process that integrates the personal touch of a relationship-based advisor with high-tech software tools to assess a client’s current portfolio and then analyze options from a variety of financial vehicles.
Related Articles: Everyone Has a Plan Until They Get Punched in the Mouth, Is Fear Putting Your Financial Plan at Risk?, That Queasy Feeling in Turbulence
Under the CARES act, an accountholder who already took a 2020 distribution has up to 60 days to return the distribution without owing taxes on it. This material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Under the SECURE Act, your required minimum distribution (RMD) must be distributed by the end of the 10th calendar year following the year of the Individual Retirement Account (IRA) owner's death. Penalties may occur for missed RMDs. Any RMDs due for the original owner must be taken by their deadlines to avoid penalties. A surviving spouse of the IRA owner, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the IRA owner, and children of the IRA owner who have not reached the age of majority may have other minimum distribution requirements.
Under the CARES act, an account holder who already took a 2020 distribution has up to 60 days to return the distribution without owing taxes on it. This material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Under the SECURE Act, in most circumstances, once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA). Withdrawals from Traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. You may continue to contribute to a Traditional IRA past age 70½ under the SECURE Act, as long as you meet the earned-income requirement.
Accountholders can always withdraw more. But if they take less than the minimum required, they could be subject to a 50% penalty on the amount they should have withdrawn – except for 2020.
1. CNBC.com, March 25, 2020.
2. The Wall Street Journal, March 25, 2020.
3. The Wall Street Journal, March 25, 2020.
4. The Wall Street Journal, March 25, 2020.