Key Provisions of the CARES Act

Distributions can be waived in 2020 for Inherited Accounts, 401(k)s, and IRAs.

Recently, the $2 trillion “Coronavirus Aid, Relief, and Economic Security” (“CARES”) Act was signed into law. The CARES Act is designed to help those most impacted by the COVID-19 pandemic, while also providing key provisions that may benefit retirees.1

To put this monumental legislation in perspective, Congress earmarked $800 billion for the Economic Stimulus Act of 2008 during the financial crisis.1

The CARES Act has far-reaching implications for many. Here are the most important provisions to keep in mind:

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.1

Business Owner Relief. The act also allocates $500 billion for loans, loan guarantees, or investments to businesses, states, and municipalities.1

Your Inherited 401(k)s. People who have inherited 401(k)s or Individual Retirement Accounts can suspend distributions in 2020. Required distributions don’t apply to people with Roth IRAs; although, they do apply to investors who inherit Roth accounts.2

RMDs Suspended. The CARES Act suspends the minimum required distributions most people must take from 401(k)s and IRAs in 2020. In 2009, Congress passed a similar rule, which gave retirees some flexibility when considering distributions.2,3

Withdrawal Penalties. Account owners can take a distribution of up to $100,000 from their retirement plan or IRA in 2020, without the 10-percent early withdrawal penalty that normally applies to money taken out before age 59½. But remember, you still owe the tax.4 Many businesses and individuals are struggling with the realities that COVID-19 has brought to our communities. The CARES Act, however, may provide some much-needed relief. Contact your financial professional today to see if these special 2020 distribution rules are appropriate for your situation.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Under the CARES act, an accountholder who already took a 2020 distribution has up to 60 days to return the distribution without owing taxes on it. This material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Under the SECURE Act, your required minimum distribution (RMD) must be distributed by the end of the 10th calendar year following the year of the Individual Retirement Account (IRA) owner’s death. Penalties may occur for missed RMDs. Any RMDs due for the original owner must be taken by their deadlines to avoid penalties. A surviving spouse of the IRA owner, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the IRA owner, and children of the IRA owner who have not reached the age of majority may have other minimum distribution requirements.

Under the CARES act, an accountholder who already took a 2020 distribution has up to 60 days to return the distribution without owing taxes on it. This material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Under the SECURE Act, in most circumstances, once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA). Withdrawals from Traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. You may continue to contribute to a Traditional IRA past age 70½ under the SECURE Act, as long as you meet the earned-income requirement.

Account holders can always withdraw more. But if they take less than the minimum required, they could be subject to a 50% penalty on the amount they should have withdrawn – except for 2020.

Securities offered through Private Client Services, Member FINRA/SIPC. Advisory products and services offered through US Advisory Group, a Registered Investment Advisor.  Private Client Services and US Advisory Group are unaffiliated entities. 


1 – CNBC.com, March 25, 2020.

2 – The Wall Street Journal, March 25, 2020.

3 – The Wall Street Journal, March 25, 2020.

4 – The Wall Street Journal, March 25, 2020.

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Why the Paycheck Protection Program is Important to You

There’s two trillion dollars out there. How are you going to get your share?

If you are in business or run a 501(c)(3), the first place to look is the Paycheck Protection Program whether you have been cutting paychecks or not.

The Paycheck Protection Program is an extension of the Small Business Administration 7(a) program. SBA needs to make up the exact rules and then the rules have to be implemented by the 1,800 banks that are part of the program.  To participate, you must contact a bank.

If you have an existing banking relationship, you should contact that bank first.  Otherwise, contact us and we can get the ball rolling for you.

With that caveat, I will dive a little deeper into the legislation.


Besides promising that you are only going to take out one loan under the Payroll Protection Program, you have to certify two things: That you intend to use the money to retain workers, and maintain payroll, or make mortgage lease or utility payments.

So if you have the whole COVID-19 situation figured out so you are perfectly sure how you will get through the crisis without borrowing any money, you don’t qualify.  Feel good about that; everybody else in the country wants to be you.

Generally, you can’t have more than 500 employees to be eligible, but I figure if you have more than a couple of hundred, you have one or two of them studying the legislation for you.  There are still some exceptions.

Payroll Costs – The Most Important Definition

“Payroll costs” is the most important concept and thankfully is defined the same way throughout.

“Payroll costs” is defined very broadly and includes salary, wage, commission, or similar compensation, payment of cash tip or equivalent, payment for vacation, parental, family, medical, or sick leave, allowance for dismissal or separation, payment required for the provisions of group health care benefits, including insurance premiums, payment of any retirement benefit, and payment of State or local tax assessed on the compensation of employees.

And there is one more thing included in payroll costs:

“the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period” 

It seems you include the people you are paying as independent contractors and if you are a sole proprietor whatever your schedule C profit was (up to $100,000) and something similar for partnerships.

Including your Schedule C profit would put you in a similar position (slightly better maybe) as an S Corporation owner who paid himself a reasonable salary.  An S Corp owner that did not pay himself salary might be worse off.

Excluded from payroll costs are amounts attributable to payroll over $100,000 and amounts for which you are getting credit under the Families First Coronavirus Response Act.

The Sweet Terms

No collateral or personal guaranty is required.  Interest is no more than 4% and repayment, if required, can be over a period as long as ten years.  You don’t have to show that you can’t borrow the money elsewhere.

Three Sets of Rules to Consider

There are three important things that people want to know about this program.  

  • How much can you borrow?
  • How are you supposed to spend the money?
  • And how much of the loan will be forgiven?

It can be somewhat confusing because each set of rules uses some of the same elements, but they are different in how they are combined.

How Much Can You Borrow?

There are things that you can use the loan for besides “payroll costs,” but the maximum loan computation is based solely on payroll costs.  It is 2.5 times the average monthly amount of payroll costs from the 1-year period before the date on which the loan is made.  If you are seasonal it is the amount you paid in 2019 for the 12 week period beginning February 15, 2019 or at your election March 1 to June 30.

And there is a $10,000,000 limit.

What Can You Use The Loan For?

Besides payroll costs you can use the loan funds for:

  • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
  • Employee salaries, commissions, or similar compensations;
  • Payments of interest on any mortgage obligation (which shall not include any prepayment of, or payment of, principal on a mortgage obligation);
  • Rent (including rent under a lease agreement);
  • Utilities; and
  • Interest on any other debt obligations that were incurred before the covered period.

We recommend that you seriously consider opening a standalone account where you deposit the loan proceeds and use that account to pay permitted expenses.  That would give you a very easy audit trail.

How Much Can Be Forgiven?

This can be somewhat ambiguous, as the forgiveness section uses the term “covered period” but defines it differently than the loan amount section.  It is the eight-week period beginning with the origination of the loan.

Here is the actual language:

“Forgiveness.—An eligible recipient shall be eligible for forgiveness of indebtedness on a covered loan in an amount equal to the sum of the following costs incurred and payments made during the covered period:

(1) Payroll costs.

(2) Any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation).

(3) Any payment on any covered rent obligation.

(4) Any covered utility payment.”

This is one of the reasons we recommend a segregated account and payments drawn from there.  The trail will be much easier, later.

But then there is a reduction in the forgiveness amount based on a headcount fraction.

“ (A) IN GENERAL.—The amount of loan forgiveness under this section shall be reduced, but not increased, by multiplying the amount described in subsection (b) by the quotient obtained by dividing—

(i) the average number of full-time equivalent employees per month employed by the eligible recipient during the covered period; by

(ii) (I) at the election of the borrower—

(aa) the average number of full-time equivalent employees per month employed by the eligible recipient during the period beginning on February 15, 2019 and ending on June 30, 2019; or

(bb) the average number of full-time equivalent employees per month employed by the eligible recipient during the period beginning on January 1, 2020 and ending on February 29, 2020; or

(II) in the case of an eligible recipient that is seasonal employer, as determined by the Administrator, the average number of full-time equivalent employees per month employed by the eligible recipient during the period beginning on February 15, 2019 and ending on June 30, 2019.

(B) CALCULATION OF AVERAGE NUMBER OF EMPLOYEES.—For purposes of subparagraph (A), the average number of full-time equivalent employees shall be determined by calculating the average number of full-time equivalent employees for each pay period falling within a month.”

There is also a carve-back in the forgiveness amount if there is a reduction in pay of more than 25% of any individual full-time employee. These reductions, however, are not implemented if you are fully staffed up by June 30.

All Might Not Be Forgiven

Even if you spend all the money on permitted expenses, the difference in the definition of “covered period” might mean that you won’t have the full amount forgiven.  And then there is that headcount problem.

One of the big unknowns is how quickly the banks will be able to dish out the money.  Still the loan is a good deal even if you have to pay some of it back.

In Closing

We will continue to monitor further announcements and/or best interpretations for the Payroll Protection Program for you.  It is clear this presents an opportunity for the small business owners to help themselves alleviate the hardship of this crisis.  Many Advisors/Consultants will share this information but few will help walk you through it.  Again, your first call should be to your bank where you have a pre-existing relationship but please do not hesitate to reach out to us if you would like us to help in any way.

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Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Advisory Group, a registered investment advisor and separate entity from LPL Financial. The LPL Financial registered representative(s) associated with this website may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.

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