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The COVID-19 pandemic has affected numerous aspects of our daily lives. We are isolated from friends and family, forced to change long-awaited plans and unsure of what the economic future holds. Things that felt important six weeks ago may suddenly feel unimportant or even be forgotten entirely, but it is critical to maintain a long-term perspective when it comes to investing and planning, even in the face of short-term disruption. During these stressful and uncharted times, it is important to stay focused on preserving both your physical and mental wellbeing, along with your financial wellbeing.


On March 27, the President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act in to law. The bill contains provisions to provide economic stimulus to our economy and relief for businesses and individuals impacted by COVID-19. Many of these provisions will impact individuals and create income tax and cash flow planning opportunities currently and for the 2020 tax year.

  • 2020 Recovery Rebate: An advancement of a 2020 income tax credit will be paid to individuals in the sum of $1,200 ($2,400 for married filing joint) plus $500 for each qualifying child. The rebate shall be phased out for taxpayers based on adjusted gross income (AGI) from their most recently filed tax return.
  • Special Rules for Use of Retirement Funds: Individuals may withdraw up to $100,000 from retirement accounts without penalty for Coronavirus related needs and with an expanded rollover period of three years for either repayment or inclusion in taxable income ratably over three years. Additionally, for the 180 days following the signing of the CARES Act, the amount an individual may borrow from their qualified plan has increased from $50,000 to $100,000, and certain loans from plans that will become due between the enactment of the Act and December 31, 2020 will have a one year delay in the due date.
  • Temporary Waiver of Required Minimum Distributions (RMD) Rules for Certain Retirement Plans and Accounts: The Act suspends the requirement to make RMDs from IRAs and defined contribution plans that would otherwise be required in 2020. This waiver applies to normal distributions, inherited IRAs, and to distributions for retirees who attained age 70 ½ in 2019 and deferred their first distribution to a period before April 1, 2020 (allowing a waiver of both the 2019 distribution and 2020 distribution). If you have already taken your RMD for 2020 in the past 60 days, you may be eligible to roll the distribution back into your account as a qualified rollover. We recommend that you speak with your financial advisor or your retirement account custodian to discuss the specifics and eligibility. Forgoing an RMD calculated based on a potentially higher market value when the market has depleted allows for the opportunity for investments to bounce back inside your deferred qualifying plan and could present additional tax planning opportunities regarding reduced taxable income.
  • Modifications of Limitations on Charitable Contributions During 2020: For tax years beginning in 2020, individuals that take the standard deduction will be allowed an additional tax deduction up to $300 per taxpayer for cash contributions made to qualifying charitable organizations. Additionally, there will be a temporary suspension of any deduction limitation on cash contributions made to qualifying charitable organizations during 2020 up to the individual's adjusted gross income (with any excess carried over).
  • Exclusion for Certain Employer Payment of Student Loans: Any payments made by an employer under a qualified educational assistance program on behalf of an employee for principal or interest on any qualified education loan after the enactment of the Act and before January 1, 2021 shall be excluded from taxable income up to $5,250.
Additional Planning Opportunities and Looking Forward

After acknowledging the provisions laid out by the CARES Act, what can you do to maintain a long-term perspective and keep up financial fitness?

  • Rebalancing Portfolios and Tax Loss Harvesting: Rebalancing accomplishes two things: (i) it ensures that portfolios are allocated in line with target risk profiles; and (ii) it helps investors stay disciplined and adhere to the fundamental rule of investing (buy low, sell high) by selling out of areas that have overperformed and buying into those areas that have underperformed. In taxable investment accounts, rebalancing can also be an opportunity to strategically recognize taxable losses, which can then be carried forward and used to offset future capital gains.
  • Contributing to Your IRA: Under a recent IRS pronouncement, tax payers have until the new filing deadline of July 15, 2020, to make a contribution to their IRA for the 2019 tax year. For those who are eligible, consider contributing to a Roth IRA to obtain tax-free growth as the market eventually recovers.
  • Consider a Roth Conversion: With lower market values and the potential to plan for lower taxable income, 2020 may be a year to consider converting retirement plans to a Roth to take advantage of tax-free growth in coming years. This is also an important estate planning consideration given the recent passage of the SECURE Act.
  • Refinancing: Interest rates are currently at near historic lows. Individuals should consider refinancing their home mortgages, student loans and credit card debt to lower their monthly payments going forward.
  • Review and Plan Your Budget: The most basic way to respond to an economic downturn is to look at your budget. Are there things you can cut back on, or is there something you've realized you can now live without? Now is a good time to review your budget and cut back on non-essential discretionary spending. Retirees should see if they can take less from their portfolio if possible and draw more on cash reserves.
  • Review Current Estate Planning Documents: This may be a great time to review your will, revocable trust, powers of attorney and living will to make sure beneficiary designations are in order and that your documents are up to date to reflect your wishes. If gift planning to minimize estate tax exposure is currently part of your overall estate plan, now may be an opportune time to transfer wealth while values may be depressed.

Despite everything that seems to be going wrong in the world right now, we are in an incredibly favorable tax environment. It is important to stay proactive in all of your planning efforts and find that balance between short-term and long-term goals, so that you are able to come out of this crisis financially strong. Your tax or financial advisor can help you make the most of the CARES Act and other planning techniques.

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