Government Relief for COVID-19 and the Impact for Financial Planners
In an effort to mitigate the financial and economic effects of the COVID-19 outbreak on individuals and companies, the federal government passed the CARES Act, which was signed into law in late March.
It may be worth reaching out to your clients proactively and advising what does or does not apply to them.
Beyond the stimulus checks, unemployment assistance and Paycheck Protection Program, the relief provided by the government will likely have an impact on your financial planning work with your clients due to changes to retirement savings regulations and student loan relief. Because these retirement policy changes have gained so much media coverage, it may be worth reaching out to your clients proactively and advising what does or does not apply to them — particularly before some make decisions that may not be in their best interest.
While you should, of course, do your own due diligence on the details of these provisions, this briefing should serve as starting point for conversations with clients and a reminder that these policies are still relevant.
Contribution Date: The date for making 2019 contributions to a traditional or Roth IRA has been extended from April 15 to July 15. CFP® professionals should reiterate this to clients and make sure that if they plan to take advantage, the contribution should be coded for 2019, not 2020.
Waived RMDs: Required minimum distributions (RMDs) have been waived for 2020, allowing retirees who don’t need or want to withdraw retirement funds to avoid these forced distributions. This also ensure that your clients who are retirees won’t be paying taxes on withdrawals that are based strictly on December 31, 2019, account values, when the markets still were rising.
Hardship Distribution from Retirement Funds: Individuals who are under 59½ can take up to a $100,000 coronavirus-related hardship distribution from a 401(k) or other qualified retirement account through 2020 without paying the 10% early withdrawal penalty. If your client chooses this option, they still will have to pay income taxes on any withdrawals, but under this provision, they can stretch those taxes over three years instead of paying them all in one year. Alternatively, your client can replace the funds within three years without worrying about the annual cap on contributions. (Savers who are older than 59½ are also eligible to take advantage of the three-year tax deferral/payback provision.) It may be worth emphasizing to interested clients that this is a hardship distribution, and should be used only as a last resort by those who are truly strapped for cash.
Student Loan Relief
Federal student loan payments are suspended through September 30, 2020. If your clients (or their children) have federal student loan payments due, the CARES Act delivers a brief reprieve for them. The law suspends all principal and interest payments from March 13, 2020 through September 2020. Prior to the CARES Act, the Department of Education had announced a 60-day suspension, but now those with student debt have a little more flexibility when it comes to their loan payments.
It should go without saying that your clients should continue to make their usual payments if they can afford to do so, but some clients may benefit from this payment suspension. Additionally, their servicer may have stopped making automatic payments without them realizing. Take this opportunity to make sure your clients are thinking through their student loan debt payments.
What’s Ahead for Congress
While the legislation enacted thus far may help mitigate the economic burden from COVID-19, many lawmakers and others believe that further support will be needed.
The House of Representatives recently passed another $3 trillion coronavirus relief package, The Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, which would provide another round of stimulus checks to millions of eligible Americans and extend expanded unemployment benefits, among other provisions.
Although the Senate is not expected to take up this bill, the two chambers are likely to come together and agree on a more limited economic relief package, most likely in the form of additional stimulus payments to individuals and families, which may have implications for you and your clients.