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What you need to know about the CARES ACT 2020

Coronavirus Relief

Coronavirus Relief

The $2 trillion “Coronavirus Aid, Relief, and Economic Security” (“CARES”) Act was recently signed into law. Big picture, these rule changes are meant to help Americans who may be struggling with the economic, emotional, or physical toll of COVID-19.


  • CARES Act provisions for individuals include tax rebates, enhanced unemployment benefits, penalty-free access to retirement assets, and required minimum distribution and student loan relief.
  • The CARES Act also includes help for large and small business owners, including potentially forgivable loans.


Hardship Distributions: Waives the 10% additional penalty tax on early distributions from

qualified retirement plans and IRAs for an individual:

  • Who is diagnosed with COVID-19;
  • Whose spouse or dependent is diagnosed with COVID-19
  • Who experiences adverse financial consequences as a result of being quarantined,
    furloughed, laid off, having work hours reduced, being unable to work due to lack of child
    care due to COVID-19, closing or reducing hours of a business owned or operated by the
    individual due to COVID-19; or
  • Other factors as determined by the Treasury Secretary

The legislation allows those individuals to pay the income taxes ratably over three years and provides for
the penalty-free distributions to be repaid to the plan or IRA within three years, not subject to the
retirement plan contribution limits. We will need more guidance to determine the steps an
individual would take on their tax return.

Plan Loans

  • The act doubles the current loan limit from $50,000 to $100,000, or 100% of the
    participant’s vested account balance. If an individual has an outstanding loan balance, and there is
    a loan repayment due after the CARES Act becomes law, they can delay their loan repayment(s) for
    up to a year

Other Retirement Plan related impacts:

  • Plan Amendments: The legislation permits retirement plans to adopt the hardship and loan
    rules immediately, even if the plan currently does not allow for these withdrawal provisions.
  • Single-employer Defined Benefit Plan Funding Rules: give employers more time to meet
    their 2020 funding obligations by providing them until Jan. 1, 2021.
  • Expansion of DOL Authority to Postpone Certain Deadlines under ERISA


RMD Waiver

RMD Waiver

IRAs and workplace retirement plans will not be subject to required minimum distributions (RMDs) in 2020.

This includes first-time RMDs for people who turned 70½ in 2019 but did not take their first RMD by December 31, 2019. It applies to everyone, not just people adversely affected by the coronavirus.

If you have taken an IRA distribution you don’t need within the past 60 days, you may be able to put that money back into your IRA (called a 60-day rollover). Keep in mind that you are only allowed one such transaction per 12-month period (measured from the date you receive the distribution).

RMD'S for Inherited IRA's

RMD'S for Inherited IRA's

The CARES Act allows people who have inherited 401(k)s, IRAs or Roth IRAs to suspend distributions in 2020 (while RMDs don’t apply to people with Roth IRAs, they do apply to investors who inherit Roth accounts).


  • Let’s say an account holder has been taking RMDs from an inherited account for a number of years using the life-expectancy method set by the Internal Revenue Service. The account holder can forgo a distribution in 2020, and resume distributions in 2021.
  • Suppose an account owner passed away on January 1, 2020, and left the IRA to an adult child. The new 10-year rule would start in 2021. The beneficiary would have until the end of the 10th year to withdraw the entire account.


Stimulus Check Details

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.

Payments will be received by direct deposit to either the account on file with the 2018/2019 tax return, or the social security administration for seniors. If no direct deposit account option is available, then a physical check will be mailed.

Enhanced unemployment benefits

Enhanced unemployment benefits

Benefits in calendar year 2020 have been enhanced in three ways:

  1. People are eligible for unemployment benefits in a broader range of circumstances, including selfemployed, independent contractors, and those furloughed or unable to work as a result of the coronavirus.
  2. Duration of benefits is extended to as long as 39 weeks (with specifics depending on state laws).
  3. Benefit amounts are increased by $600 per week through July 31, 2020.

Actions individuals may want to consider:

If you are unemployed or become unemployed during 2020, you should file for unemployment benefits with your state even if you aren’t sure whether you qualify.

Student Loan Relief

Student Loan Relief

Federal student loan payments are suspended through September 30, 2020, without any interest accruing.

In addition, the federal government will not enforce involuntary collection efforts (such as wage garnishment) during this time. The months without payments will
still count toward requirements for loan forgiveness programs.

Charitable Contributions

Charitable Contributions

All taxpayers can take deductions for qualified charitable contributions in 2020 of up to $300.

These “above the line” deductions are available if you don’t itemize, which gives people incentive to help charities in need. Charitable itemized deductions made in cash to public charities are generally limited to 60% of AGI, but that limit has been suspended for 2020. While that restriction did not affect many taxpayers, if you have ambitious charitable goals, this change gives you more ability to make a large impact in 2020. 

Delayed Tax Filing

Delayed Tax Filing

The due date to file and pay (without interest or penalties) 2019 federal income taxes has been extended from April 15 to July 15, 2020.

This new deadline also applies to first quarter 2020 estimated taxes, but second quarter 2020 estimated taxes will still be due June 15, 2020.

Along with that change, the deadline for making 2019 IRA contributions is also extended to July 15, 2020.




The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $350 billion to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection Program, the initiative provides 100% federally guaranteed loans to small businesses.

Importantly, these loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward. 

The administration soon will release more details including the list of lenders offering loans under the program. In the meantime, the U.S. Chamber of Commerce has issued a guide to help small businesses and self-employed individuals prepare to file for a loan. Click the link below to access the guide.



Many businesses and individuals within our community are struggling with the new realities that COVID-19 has created. The CARES Act, however, may provide some much-needed relief for our neighbors, friends, and loved ones.

If you’d like to chat about how the CARES Act impacts you or to see if these special 2020 distribution rules are appropriate for your situation, give me a call or submit a question below. 

This is meant for educational purposes only.  The information is based on data gathered from what we believe are reliable sources. It is not guaranteed by Waddell & Reed, Inc. as to the accuracy and is not intended to be used as the basis for any investment decisions. The information presented does not constitute a solicitation for the purchase or sale of any security and is not a recommendation of any kind. Waddell & Reed and its representatives do not offer tax advice.  Please consult your financial advisor and tax professional before making financial decisions.  

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