The CARES Act - What You Need to Know

April 2020

On Friday March 27th, Congress passed and President Trump signed the Coronavirus Aid, Relief and Economic Security or “CARES” Act to provide relief from the coronavirus pandemic. The legislation, which is close to 1000 pages in total, reaches a vast array of the U.S. economy. Here are the major takeaways that could affect you, your employees, and your retirement plan.


Temporary Suspension of Required Minimum Distributions


The CARES Act allows individuals to forgo their required minimum distribution (RMD) from their qualified retirement account, such as an IRA or 401(k). Starting this year, individuals are subject to an RMD at age 72 (prior age was 70 1/2).

Due to increased volatility and the recent market downturn, RMD’s could have potentially reduced account balances by a larger proportion than normal. To mitigate this effect, the CARES Act allows for these distributions to be waived for the 2020 calendar year. This is being offered across the board, regardless of how someone is affected by coronavirus. Lastly, if an individual has already satisfied an RMD for 2020, he or she is eligible to roll those monies back into their IRA or 401(k) to defer taxes. This RMD suspension also applies to inherited IRAs.


Provisions for Charitable Giving


If you take the standard deduction on your 2020 tax return, the CARES Act allows for a one-time “above-the-line” deduction of up to $300 for cash donations given this year to qualified charities (those with tax-exempt status by the IRS).

Alternatively, if you itemize on Schedule A of your tax return, the CARES Act lifted the 60% AGI limit for cash donations. Both provisions are designed to encourage charitable donations by individuals during this time when the need from charitable organizations is at an all-time high.


Changes for 401(k) Distributions


Participants are able to make distributions from their 401(k) (or IRA) up to $100,000 during the 2020 calendar year as a coronavirus related distribution. For these distributions:

  • The 10% early withdrawal penalty is waived for participants under 59 1/2.
  • The requirement to withhold 20% in federal taxes at distribution is waived.
  • The distribution MUST be included in taxable income, but can be spread in equal installments over a three year period.
  • Repayment of distributions:
    • Participants are able to repay the distributions made from any retirement account. The payment window is three years from the date in which the participant physically receives the distribution. This does not have to be an all or nothing payment. You could repay the distribution in full or a lesser amount, allowing flexibility for each participant’s individual financial situation.
    • Repayments will be treated as rollovers into the plan, so Plan Sponsors will not have to break these out into payment sources.


Increased 401(k) Loan Limits & Postponement of Payments


Instead of 401(k) Loans being capped at the lesser of $50,000 or 50% of the vested account balance, a participant can now take the lesser of $100,000 or 100% of the vested balance.

For existing or new loans, any payments due between March 27th and December 31st of the 2020 year, can be postponed all the way up to one year. Interest on the loan will continue to accrue, however, the postponement could extend the typical 5 year cap on these loan repayments.

Who is eligible for the 401(k) related relief?

Please note that your plan will have to elect to allow for the two provisions above and that eligibility must be offered on a non-discriminatory basis to all participants. Here are the very broad circumstances that would allow a participant to become eligible:

  • Those diagnosed with coronavirus.
  • Those whose spouse or dependent is diagnosed with coronavirus.
  • Those who are experiencing financial adversity due to being quarantined, laid off, furloughed, or having work hours reduced.
  • Those who are unable to work due to loss of childcare.


Paycheck Protection Program (PPP) For Small Business


Another provision of the CARES Act is allocated to small-business loans made through participating banks and large credit unions. Businesses with fewer than 500 employees can apply for the “forgivable” loans - meaning that owners get to keep the money if used to pay employees earning less than $100,000 a year, or for monthly rent (or mortgage), utilities, and interest payments (not principal).

The max loan amount is equal to 2.5 times the average “payroll costs” during the year before the loan is taken, in this case, 2019. We recommend that you consult with your business tax advisor and commercial lender for more information.

Visit to apply for a loan, or click here to view the small business qualifications table

Recovery Rebates


Refundable income tax credit against 2020 income of up to $2,400 for married couples filing a joint return. All other filers begin with a refundable credit of up to $1,200. The credit amount then increases by up to $500 for each child a taxpayer has under the age of 17.       

AGI threshold amounts: Married Joint, $150,000; Head of Household, $112,500; All Other Filers, $75,000. Payment reduced by $50 for every $1,000 over threshold amounts.            

Individuals must have a work-eligible Social Security number (and not be claimed as a dependent), but they do not need to have had reportable income in 2019 and can also be eligible for other income-benefit programs as well.          

Click here for a calculator to help you estimate the amount that you and your family will receive.

Unemployment Compensation Benefits


Unemployment Compensation is "bumped" by $600 per week for employees that would already qualify for unemployment compensation benefits under State law. This additional benefit is payable by the State, to be reimbursed by the Federal Government and is not charged to the employer's UI account. The benefit period is also extended by 13 weeks, from the normal 26 weeks to 39 weeks.

Unemployment benefits will also be available the first week of unemployment, waiving the "normal" one-week waiting period. This will be paid by the Federal Government for States that agree to waive the one-week waiting period. 


One-Year Extension of the 5-Year Rule for Non-Designated Beneficiaries


Non-designated beneficiaries who inherited an IRA in 2015 or later who are subject to the 5-year payout rule now have one more year to empty the account. This typically applies to such beneficiaries who inherited the retirement account prior to the decedent reaching their required minimum distribution date.   


Deferred Student Loan Payments


Most federal student loan borrowers can temporarily pause payments, including principal and interest, through September 30th. Involuntary collections, including wage garnishment and the reduction of tax refunds or other federal benefits will also be suspended. Qualifying borrowers do not have to apply to have payments paused, as they will be automatically paused.

Some federal loan programs (some that no longer issue new loans) and private loans do not qualify for the temporary pause.

This report was prepared by Donaldson Capital Management, LLC, a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Information in these materials are from sources Donaldson Capital Management, LLC deems reliable, however we do not attest to their accuracy.

An index is a portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance to certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. An index does not charge management fees or brokerage expenses, and no such fees or expenses were deducted from the performance shown. Past performance is not a guarantee of future results. The mention of specific securities and sectors illustrates the application of our investment approach only and is not to be considered a recommendation by Donaldson Capital Management, LLC.

S&P 500: Standard & Poor’s (S&P) 500 Index. The S&P 500 Index is an unmanaged, capitalization-weighted index designed to measure the performance of the broad U.S. economy through changes in the aggregate market value of 500 stocks representing all major industries.