But wait, there's more! (CARES Act personal relief)

April 05, 2020
First, thanks to so many of you for the kind words over the past week. I know my dad has appreciated the camaraderie from his note on Friday and with strict social distancing measures in place for most of us, it’s refreshing to have such a supportive community to get through this together.

You may not know this, but I write my email every week from scratch. My goal is to cram as much useful and relevant information for ODs into 500 to 600 words. The CARES Act that came into law Wednesday is 880 pages, and has been impossible to address in one email.

In addition to the cash payments, there are a few other provisions in the bill that are noteworthy and relevant to personal finances. And like with most things in this bill, they need to be done correctly to maximize the benefit.

Student Loan Deferrals: Principal and Interest are deferred for federal student loans (read: not private loans, although I suspect most of them are doing this too). This does not just happen automatically—the borrower has to call to request it. Don’t let your next payment surprise you when it debits!

For students who have to withdraw from enrollment due to COVID-19, some amount of loan forgiveness is available ($2,000 to $10,000). This is a little murky, but the consensus is that since most universities will continue classes in an online capacity the actual number of students this could apply to is limited.

Qualified Plan Distributions and Loans: Please note I strongly discourage dipping into your retirement accounts (IRA/401k/Pension) unless it is absolutely critical. These accounts are protected in the event of bankruptcy, and won’t do you much good if they’re been depleted. But if you do need to, consider this:

  • Maximum loan and distribution amounts have increased from $50,000 to $100,000, up to 100% of the vested balance of the account
  • Distributions for COVID-19 related reasons don't have taxes withheld (usually required) and do not come with the normal 10% penalty for those under 50. Recipients have 3 years to put the funds back into their accounts before incurring taxes and penalties
  • Loans for COVID-19 reasons can be repaid within 3 years, and are interest free
  • You must let your plan provider know that the distribution or loan is due to “experiencing adverse financial consequences” to get this treatment

Required Minimum Distributions (RMDs): If you’re 70 or older, or have an inherited IRA: you are not required to take a RMD this year. So why does this matter?

One basic reason is to not sell stocks (or possibly add to) while the market is down. Also, RMDs are taxable as ordinary income, so deferring a distribution if it’s not needed saves on a 2020 tax bill. This can be especially valuable for practice owners who are also taking RMDs.

For those over 70 who have already taken their distribution, they can re-categorize it as a COVID-19 withdraw and have 3 years to put it back as outlined above. (Please note this doesn’t apply for inherited IRAs).

Principal, Interest and Fee Waivers on SBA loans: this is pretty sweet relief for businesses with 7A loans—payment of the principal, interest and fees for 6 months. From what I can see, the first 6 payments due after March 27, 2020 will be paid by the SBA. It appears to me this will be done automatically, but it's worth a call to your lender to check.

Thinking about getting an SBA loan? This payment applies for loans taken out up through September 27, 2020, so if you were thinking about purchasing your practice real estate (as one example) in the near future, now might be a good time.

This is a good place to note that PPP loans fall under the 7A umbrella. I have not seen anything saying PPP loan amounts that are not forgiven wouldn't be eligible for this relief, so it’s something to keep in mind if you’re unsure you can hire your whole staff back to meet the headcount rules, and a great question to ask your lender.

I’m over 600 words here, but I hope this additional information is useful for you or someone you know. In the meantime, stick to that schedule, don’t read the news, and take action on how to get your practice back up and running as quickly as possible when this is over!

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