CARES Act provides investors, business owners with opportunities

ALPENA, Mich. —  One financial analyst says the CARES Act offers a ray of hope during this time of health and financial crisis.

Pam Kirchoff, with Edward Jones  in Alpena, says the legislation provides investors and business owners with important opportunities to consider and potentially maximize.

For example, Kirchoff says there are several provisions of the CARES ACT that may be of particular benefit to investors:

Direct payments – Individuals will receive a one-time payment of up to $1,200; this amount is reduced for incomes over $75,000 and eliminated altogether at $99,000. Joint filers  will receive up to $2,400, with this amount reduced for incomes over $150,000 and eliminated at $198,000 for joint filers with no children. Plus, taxpayers with children will receive an extra $500 for each dependent child under the age of 17.

“One possible idea for this money is to use it as part of an emergency fund,” Kirchoff says. “By putting it in a low-risk, liquid account, you’ll have it available when you need it for any large, unexpected expenses during the next several months.”

Expanded unemployment benefits – The CARE Act provides $250 billion for extended unemployment insurance, expands eligibility and provides workers with an additional $600 per week for four months, in addition to what state programs pay. Unemployment benefits will also be extended through Dec. 31 for eligible workers. And the provisions also cover the self-employed, independent contractors and “gig economy” workers.

“These benefits can provide a lifeline to many workers,” Kirchoff says. “And they may be able to help people avoid liquidating some long-term investments earmarked for retirement just to meet their daily cash flow needs. So, in that sense, the money can help individuals feel more secure today and in the future.”

No penalty on early withdrawals – Typically, individuals must pay a 10% penalty on early withdrawals from IRAs, 401(k)s and similar retirement accounts. Under the CARES Act, this penalty will be waived for individuals who qualify for COVID-19 relief for distributions up to $100,000 in aggregate from IRAs and plans that allow COVID-19 distributions. Withdrawals will still be taxable, but the taxes can be spread out over three years.

“Waiving the 10% penalty is a positive move during times like this,” Kirchoff says, “but we would still advise our clients that, if they really have a need for the money, to look at other sources first, because IRAs and 401(k)s are long-term vehicles designed to help support people during their retirement years.”

Suspension of required withdrawals – Owners of traditional IRAs and 401(k)s are usually required to start taking withdrawals from these accounts once they reach 72. The CARES Act waives these required minimum distributions for 2020.

“Of course, if people need the money, they can still tap into these funds,” Kirchoff says. “But, if not, this provision gives the money even more time to grow on a tax-deferred basis.

Increase in retirement plan loan limit – 401(k) investors who qualify for COVID-19 relief can now borrow up to $100,000 from their accounts, up from $50,000, provided their plan allows loans.

“We recommend that you exhaust some of the other provisions associated with the CARES Act first, such as mortgage and student loan relief, or using the direct payment to bridge the gap on current expenses before taking a distribution or loan from your retirement account,” Kirchoff says. “If you decide to take a withdrawal or loan we recommend you work with your financial advisor to consider developing strategies to recontribute/pay back these funds over time to reduce any long-term impact to your retirement goals.”

Another key part of the CARES Act provides $349 billion to help small businesses – those with fewer than 500 employees – retain workers and avoid closing up shop. A significant part of this small-business relief is the Paycheck Protection Program. This initiative provides federally guaranteed loans to small businesses that maintain their payroll during this emergency. Significantly, these loans may be forgiven if borrowers use the loans for payroll and other essential business expenses (such as mortgage interest, rent and utilities) and maintain their payroll during the crisis.

“Small businesses are really the economic backbone in many of the communities in which we have our offices,” Kirchoff says. “I would certainly encourage our clients who are business owners, and any business owner, to explore this opportunity.”

Ultimately, Kirchoff says, the CARES Act may be seen as another steppingstone on the road back to recovery, from a financial standpoint.

“We’ve still got some major challenges, but it’s encouraging to see our lawmakers coming together to offer some concrete steps to provide relief to investors and business owners,” Kirchoff says. “We all need to work together to get through this challenging time, and I’m confident we’ll do just that.”