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2020 Tax strategies resulting from SECURE Act and CARES Act

2020 Tax strategies resulting from SECURE Act and CARES Act

April 19, 2020

Washington has created a number of tax changes and programs designed to assist people and businesses to weather this crisis. We thought we would give you highlights of what we think you should know about both the recently passed CARES Act, as well as some key areas in the SECURE Act, which was passed in December 2019. We have tried to structure this letter so that you can jump to the area that is most applicable to you.

This note will cover:


Stimulus Checks

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is a $2 trillion stimulus package passed in an attempt to mitigate the impact of the COVID-19 pandemic. This is the fastest that Congress has ever passed a financial stimulus package, acting within one month of the onset of the crisis. By comparison, TARP was enacted 10 months into the Great Recession, and the New Deal was enacted 42 months into the Great Depression.

There are several provisions of the CARES Act, broadly categorized as provisions for individual taxpayers, and for employers.

One provision of the CARES Act is a direct stimulus check, payable directly to individual taxpayers. Stimulus payments are $1,200 for each individual taxpayer, and $500 for each dependent child (defined by the child tax credit rules as under age 17). Any person age 17 to 24 who was claimed as a dependent will not be eligible for the $1,200 payment, or the $500 child bonus. The payments are based on your income on your latest tax return.

Strategy Note: If you experienced a drop-in income from 2018 to 2019, you should file your 2019 tax return as soon as possible in order to qualify for your stimulus check.

What needs to be done to get the Stimulus Rebate?

Nothing. The IRS will deposit the calculated amount directly into your bank account, using the AGI and the bank information on your 2019 tax return. If your 2019 return has not yet been filed, the IRS will use the AGI and the bank information from your 2018 tax return. If there’s no bank information on the return, the IRS will mail a check.

When Will the Payments Arrive?

The IRS says that if you used direct deposit for refunds in past years, a direct deposit should be in your bank account soon, if not already. The first deposits hit bank accounts on April 15th. If the IRS will need to send you a physical check, those should start arriving in the mail in six to eight weeks.

2020 Tax Return Credit

Technically the stimulus rebate is a 2020 refundable tax credit. Essentially the payment you receive will be an advance on any taxes you owe in 2020. If you have less income in 2020 than in 2019 because of layoffs, reduced hours, or closed businesses, and your rebate payment was reduced because of the income threshold, you will receive a credit for the difference on your 2020 return. If for some reason you receive too much of an advanced payment, you do not have to pay back the excess.

Will the stimulus money run out?

Because of the way this is structured, as a tax credit against your 2020 tax return, there is no cap on the “pool” of money to be paid out as part of this stimulus. That means that, assuming you qualify, you do not need to worry about being left out of the stimulus. In short, this is a great deal for those who qualify: it is not considered taxable income; you don’t need to pay it back if you get a check and do not qualify because your 2020 income went up; you will not lose out if you would not have qualified based on 2018 or 2019 income, but do qualify based on a lower 2020 income.

Who and How Much?

Individuals with adjusted gross income (AGI) up to $75,000 a year are eligible for the full $1,200 payment. The payment is reduced by $5 for every $100 in income above $75,000. The payment amount is entirely phased out at an AGI of $99,000.

Married filing joint couples with AGIs up to $150,000 a year are eligible for a $2,400 payment. The payment is reduced by $5 for every $100 in income above $150,000. The payment amount is entirely phased out at an AGI of $198,000 (if the taxpayers have no dependent children). Married couples also will receive an additional $500 for every dependent child under 17.

Head of household filers with AGIs up to $112,500 a year are eligible for the full $1,200 payment and an additional payment of $500 for each dependent child under age 17. The payment is reduced by $5 for every $100 in income above $112,500. Head of household taxpayers will also receive an additional $500 per dependent child under age 17. With no eligible children, a head of household filer is phased out at AGI of $137,000. With one eligible dependent child, a head of household filer is entirely phased out of the rebate payment at AGI of $146,400.

Strategy Note: If you experienced a drop in your income from 2018 to 2019, and you think you would qualify based on 2019 income, file your 2019 return ASAP.


CARES Act Provisions

Unemployment Benefits

The Act expands unemployment insurance provisions to include an additional $600 per week payment to each recipient for up to four months, and extend benefits to self-employed workers, independent contractors, and those with limited work history. The federal government will provide temporary full funding of the first week of regular unemployment for states with no waiting period and extend benefits for an additional 13 weeks through December 31, 2020 after state benefits end.

Retirement Plan Withdrawals and Loans

Individuals may withdraw up to $100,000 from qualified retirement accounts (401(K), some 403(B) accounts) for coronavirus related purposes, without being subject to the 10 percent early withdrawal penalty. This assumes that the employer has opted into this provision. Additional relief is provided in that the income from these distributions is subject to tax over a three-year period. Individuals may re-contribute amounts withdrawn to eligible retirement funds within three years (regardless of that year’s contribution limit).

The act also increases retirement plan loans to the lesser of $100,000 or the participants vested account balance and allows participants to delay loan repayments for up to a year. This assumes that the employer has opted into this provision.

Strategy Note: We highly recommend that withdrawals and loans from your retirement plans should be used as a last resort. Consider other options before pursuing this course of action.

Charitable Contributions

For those tax filers who do not itemize: The Act creates an “above the line” deduction of up to $300 for charitable contributions for taxpayers who do not itemize. This means that if you do not itemize your deductions, and therefore would normally lose the tax deductibility of your donations, your charitable donation will be tax-deductible on your 2020 tax return. Please note, you cannot contribute to a donor advised fund for the “above the line” deduction.

Strategy Note: If you do not itemize, and are charitably inclined, make sure to take advantage of this with donations of up to $300.

Strategy Note: If you do not normally itemize, got a stimulus check, and want to help in this time of national crisis, consider using $300 of your stimulus as a charitable donation.

For those tax filers who do itemize: In normal years, the amount that you can donate to charity, and be tax deductible, is capped at 60% of Adjusted Gross Income (AGI). For the 2020 tax year, the CARES Act suspends the 60% cap for individuals who itemize. By way of example, if your household AGI is $100,000, in normal years you could claim a tax deduction for charitable donations of up to $60,000. This year your maximum charitable deduction is $100,000.

Strategy Note: If you itemize you tax return, are charitably inclined, and want to super-size your charitable giving, then 2020 is a great year to do so.

Please note that the CARES Act does not change the rules for Qualified Charitable Distributions (QCD), which are tax-advantageous for those who wish to give to charity. There is more information on the QCD in the SECURE Act section.

Strategy Note: For people that use the QCD, but use less than the full RMD amount, consider putting off your QCD until January 2021. By way of example, assume your RMD would have been $40,000 this year, and you were planning to give $20,000 to charity via a QCD. You do not need to satisfy an RMD this year, so you could could defer your 2020 QCD distribution. In early 2021 you could give the full $40,000 via a QCD and satisfy your RMD at the same time.

529 College Saving Accounts and Refunds

Were your child’s college classes cancelled? Were they asked to leave their on-campus housing? Did you receive a refund for tuition, housing, or other fees? The bad news for taxpayers is that you may owe taxes and penalties on those refunds if they originally came out of a 529 account.

The good news is that the CARES Act allows you to re-contribute that money back into a 529 account for the same beneficiary. Re-contributed refunds will not have federal income taxes or penalties associated with them, provided that you re-contribute a refund within 60 days of receiving it, and the re-contributed amount does not exceed the amount of the refund.

Please note that your original withdrawal will trigger a 1099-Q tax form from your 529 provider. This will not be changed by the fact that you re-contributed the funds. Work with your tax professional to make sure you get the credit for the re-contribution.

Strategy Note: if you took money out of a 529 this year, and received a refund from the school you paid with the 529 funds, then you must re-contribute those funds to a 529 within 60 days of the refund in order to avoid potentially paying taxes on the refund.

Extended Tax Filing and Contribution Deadline to July 15, 2020

The 2019 income tax filing – and payment deadlines – for all taxpayers who normally file and pay their Federal income taxes on April 15, 2020, are automatically extended until July 15, 2020. This relief applies to all individual returns, trusts, and corporations. This relief is automatic, taxpayers do not need to file any additional forms or call the IRS to qualify.

This relief also includes estimated quarterly tax payments for tax year 2020 that are normally due on April 15, 2020. If you have the resources to pay the first estimated payment, this will avoid having to paying two estimated payments due July 15th, 2020.

Penalties and interest will begin to accrue on any remaining unpaid balances as of July 16, 2020. You will automatically avoid interest and penalties on the taxes paid by July 15.

Individual taxpayers who need additional time to file beyond the July 15 deadline can request a filing extension by filing Form 4868 through their tax professional, tax software or using the Free File link on the website. Businesses who need additional time must file Form 7004.

Strategy Note: If you owe money on your 2019 tax return, you can wait until July 15 to file your return and to make your payment. If you are owed money by the IRS, file your tax return as soon as possible.

Strategy Note: If you were on the fence about make a 2019 contribution to your IRA or SEP IRA, you now have more time to decide. Your financial situation may change between now and July 15.


Required Minimum Distributions (RMDs)

Required Minimum Distributions (RMDs) for 2020 have been suspended. These are usually required in the year the account owner turns 72 years old (changed from 70.5 in 2019 by the SECURE Act). Congress deemed that many in retirement would be hurt by the requirement to take a distribution from their retirement accounts when the holdings are down in value. With RMDs being suspended this year, you can consider a Roth IRA conversion since your taxable income could be lower and it might be an attractive time to take advantage of this. Please see more information about Roth IRA conversions under the SECURE Act section below.

If you have been receiving Required Minimum Distributions (RMDs) from your IRA with us, we will not cancel you RMD unless otherwise directed. We usually process RMDs in November, so you have plenty of time to decide how much, if any, you would like to withdraw from your IRA.

Strategy Note: taking the contrarian view, we suggest you consider taking money out of your IRA when the balance is down. Since you will pay taxes on all IRA distributions, why not take the distribution while the value is down? To make the most of the distribution, do something productive with it: give it to charity; contribute it to your Trust, Joint, or Individual account; convert it to a Roth IRA.

Strategy Note: instead of taking your RMD this year, consider a Roth conversion of a similar amount (see more below).


Paycheck Protection Program (PPP) Loans

Paycheck Protection Program (PPP) loans are potentially forgivable loans to pay your employees during the COVID-19 crisis. Payments are deferred for six months, the interest rate is 1.0%, and the loan is due in two years. Assuming you meet the criteria based on employee retention and use of funds, the loan will be forgiven, and the forgiven debt is excluded from gross income on the corporate tax return.

The program is designed for employers with 500 employees or less – this includes sole proprietorship’s, independent contractors and the self-employed, private non-profits and 501(c)(19) veteran’s organizations.

The maximum loan amount is 2.5 times your average monthly payroll costs in 2019 for your W-2 employees. (Payroll per employee is a maximum of $100,000.)

For self-employed individuals the maximum loan amount is 2.5 times 1/12th of your 2019 Schedule C net profit (using a maximum net profit of $100,000).

The original allocation of money to the PPP program ran out less than two weeks after opening for applications, but we do expect Congress to add additional funds to the program. If Congress adds funds to the PPP program, submit your application as quickly as possible.

Expansion of the SBA Disaster Loan Program

This expansion enables sole proprietors to access disaster loans and enables them to receive a working capital loan to overcome the temporary loss of revenue. Entities that apply for a disaster loan can get an immediate advance of up to $10,000 to maintain payroll, and the advanced $10,000 does not have to be repaid even if the full loan application is later denied.

Other benefits items to note:

Health savings accounts can be used for remote medical services. You can also use them for non-prescribed medicines and drugs. You can also use them for menstrual care products.

Student loans suspended payments through Sept 30th. No interest and penalties will be accrued.



The SECURE Act was enacted into law in December 2019 and made some major changes to the tax code just weeks before they went into effect. Some of the changes in the SECURE Act have caused us to reevaluate some of the tried and true strategies we have recommended in past years.

Loss of the Lifetime “Stretch” for Inherited IRA Accounts

The provision with the greatest effect (and which may present the biggest and hardest planning challenge) is the elimination of the lifetime “stretch” option for IRAs. Prior to the SECURE Act, non-spouse beneficiaries were entitled to stretch out the withdrawal of their inherited retirement account in accordance with their life expectancy. Under the SECURE Act beneficiaries are required to withdraw their entire inherited retirement account within 10 years of the original owner’s death (with some limited exceptions).

In most instances, withdrawal over a 10-year period (rather than over the course of the beneficiary’s lifetime) will result in substantially less tax-deferred growth, as well as more taxes due (and more quickly) upon withdrawal from the account. This may possibly move the taxpayer into a higher tax bracket. Blindly spreading withdrawals evenly over a 10-year period may not be the most tax-efficient approach. Therefore, knowing the taxpayer’s year-by-year taxable income expectations (bonuses, bad years for business, exercising stock options, anticipated layoffs, projected year of retirement, etc.) will become critical if the goal is to minimize the taxation on the withdrawals.

Here are a few strategies to consider when planning for the loss of the lifetime “stretch” IRA option.

Roth conversions – While it may not feel like it, income tax rates are at historic lows, so it could be a good plan to accelerate Roth conversions so that beneficiaries can avoid being taxed rapidly on distributions. This is an especially applicable strategy if the beneficiaries are in a higher tax bracket than the original account owner. However, individuals with legacy priorities (a grandchild, for example) may not be motivated to accelerate Roth conversions under the SECURE Act. That grandchild will not receive the benefit of long-term tax-free growth from the inherited Roth because even beneficiary Roth IRAs need to be totally distributed within 10 years.

Qualified charitable distribution (QCD) – We think that the QCD is one of the smartest, and underutilized, strategies available to taxpayers. If an individual is older than 70½, he or she is entitled to make tax-free gifts of up to $100,000 per year from their IRA. To count toward the RMD, contribution must be paid directly to the charity. QCDs may become more advantageous after the SECURE Act because IRAs will become a less attractive inherited asset. Therefore, tax-free depletion of the IRA may be more beneficial, instead of making contributions direction from your non-IRA assets.

Life insurance – While not a new strategy, the coordination of life insurance with your estate plan may become more powerful under the SECURE Act. Taking withdrawals from a retirement account to pay for premiums on a life insurance policy could be more advantageous than leaving a retirement account to a beneficiary. Beneficiaries typically receive life insurance death benefits tax-free (and usually inheritance tax-free too). Depending on a variety of factors – the insurability of the individual, the size of the total estate, the tax rate of the beneficiary, etc. – the total death benefit payable to the beneficiaries may well exceed what they would receive as a beneficiary of an IRA.

General estate planning – It may make sense for account owners to revise their estate plans to take a more specific “asset-by-asset” approach, rather than simply splitting assets by percentage. For example, an account owner might earmark IRA assets to be distributed to minors or individuals in lower tax brackets (or charity) and designate a larger portion of non-IRA assets to those with higher incomes (and benefit from the step-up in basis). Finally, if you have minor children, there are some changes in the SECURE Act that may affect you. We suggest you consult with your Estate Planning Attorney to determine if you need to update your Trust document.

Strategy Note: Discuss the SECURE Act with your financial advisor, tax advisor, and Estate Planning Attorney to make sure your goals are being addressed under the new set of rules.

Other SECURE Act Provisions

There is a lot of information packed in here, so consult with your financial advisor or tax professional if you have questions.

  • Delay in the age for required minimum distributions (RMDs) from 70½ to 72.
  • Repeal of the prohibition on retirement contributions after the account owner reaches age 70½.
  • Elimination of the lifetime “stretch” IRA option. Non-spouse beneficiaries of IRAs are now required to deplete an inherited IRA balance within 10 years of the decedent’s death. This also applies to Roth IRA accounts.
  • Permission for penalty-free withdrawals of up to $5,000 from retirement accounts to help pay for childbirth or adoption expenses.
  • Expansion of permitted 529 college savings plan expenses to include apprenticeships, as well as up to $10,000 of qualified student loan repayments for the beneficiary, and $10,000 for each of the beneficiary’s siblings (an aggregate lifetime limit, not an annual limit).
  • Reinstatement of the “kiddie tax” to rates prior to the Tax Cuts and Jobs Act (TCJA). Excess income will be taxed at the parents’ rate rather than the trust and estate rates.
  • Allowance for graduate students to count stipends and non-tuition fellowship payments as compensation for IRA contribution purposes.
  • Requirement that certain part-time employees are eligible participants in employer-sponsored retirement plans.
  • The SECURE Act includes requirements designed to account for this loss of revenue by accelerating the withdrawal and taxation of inherited retirement accounts.

Things Not Affected by the SECURE Act

Here are a few individuals who are not directly impacted by the SECURE Act:

  • Those who turned 70½ prior to Dec. 31, 2019. Individuals who were 70½ or older as of Dec. 31, 2019, will continue with RMDs under the pre-SECURE Act rules (except for the 2020, per the CARES Act).
  • Surviving spouses of IRA owners. Surviving spouses have a special privilege to take over the IRA of the deceased spouse.
  • Beneficiaries of IRA owners who died before Dec. 31, 2019. The “stretch” feature is preserved for these retirement accounts.

Provisions of the CARES Act and SECURE Act will affect everyone differently based on the specifics of your situation. Contact us if you have questions.

Above all else, please stay safe.


Your SVWA Team