Some Americans Could Hit Snags Getting Stimulus Cash, Planner Says

The $2.2 trillion national relief package is nearly here.

The Senate passed the 883-page Coronavirus Aid, Relief, and Economic Security (CARES) Act late Wednesday. The House will vote Friday. Among numerous other provisions, the bill provides direct payments for most Americans. But the government could hit some bumps in its efforts to distribute the payments, according to planner Jeff Levine.

Working in some jokes, memes and plenty of details, Levine — lead "financial planning nerd" for Kitces.com and director of advanced planning for Buckingham Wealth Partners — tweeted away on what's in the mammoth legislation, including details on how the payments would work and the waiver of required minimum distributions from retirement accounts for 2020.

"OK, buckle your seatbelts, because this is about to be a wild ride!" Levine said at the start of his 56-tweet thread.

Levine, who processed a huge amount of text in the hours after the bill's release, may revise an interpretation (or two) as the package gets updated or he reassesses its details.

How Much?

" 'How much money is Uncle Sam going to be sending me?' The answer, of course, is it depends," the CPA said.

Overall, individuals are entitled to get $1,200 and joint tax filers $2,400. Taxpayers can also receive $500 for each qualifying child, 16 or younger.

"High-income taxpayers will have those rebate amounts reduced and/or eliminated as income exceeds: $150k – Joint filers $112.5k – HOH $75k – Everyone else For every $100 over the applicable threshold, you lose $5 of the rebate, until you get nothing…," Levine explained.

At these levels, taxpayers get no rebates: joint filers, $198,000; heads of households, $136,500; others, $99,000.

Income Calculations

Where do these income figures come from?

"In what I believe to be a totally asinine way of going about this, the numbers above are based on the AGI from the 2019 return, or if that return hasn't been filed (which will apply in MANY cases), the 2018 return," Levine said. (AGI stands for adjusted gross income.)

Why doesn't this make sense?

"There are probably an awful lot of people who did very well in 2018 — or even 2019 — who are now experiencing some significant financial hardship!" he pointed out.

"Congress should have based this on 2020 income, paid everyone, and settled up on next year's tax return," the CPA tweeted.

Isn't that complicated?

"It's not. In fact, we ALREADY DO IT for the premium assistance tax credits for healthcare ('Obamacare credits')," he added.

Direct Deposits

Looking at how the government is going to get this relief into taxpayers' pockets, Levine said: "In many instances, they are going to Direct Deposit this payment to the account that was authorized for a 2018 refund!! Did it not occur to anyone that people may have closed those accounts?"

Still, Levine's hopeful (though also concerned). "I'm sure eventually it will all work out and the IRS will ultimately send a check, but time is of the essence for many families!" he tweeted.

"But don't worry, it'll be ok, b/c within 15 days after the payment is sent, the IRS is going to mail you a notice that tells you how much your payment was, and where it was sent… you know… just in case you haven't gotten it yet."

If there are complications with the payment, the IRS notice will come with a phone number to call. ("Calling the IRS is easy. Ask any CPA," Levine quipped.)

Retirement Accounts, RMDs

Looking first at Section 2203, which waives the RMD requirements for 2020, Levine says relief broadly applies to:

IRAs (including SEP and SIMPLE IRAs)
401(k) plans
403(b) plans
457(b) plans

Clarifying his initial reading of the waiver, Levine said in a Tweet on Thursday, "If you turned 70 1/2 in 2019 and did NOT take an RMD in 2019, your 2019 RMD is WAIVED too. Here's to the procrastinators out there. You win again!

"2020 is also disregarded for purposes of the 5-Year Rule that applies when a Non-Designated Beneficiary inherits from a decedent who died before their required beginning date (RBD)…," the planner added.

This means that the five-year rule becomes a six-year rule if one of the five years is 2020.

"Pop Quiz: Does this same change also impact the new 10-Year Rule imposed by the SECURE Act on Non-Eligible Designated Beneficiaries?" Levine asked.

"The answer is no! It doesn't. If you got that wrong, don't feel bad, so did Congress… at least initially. In an earlier version of the bill it said 2020 was disregarded for purposes of the 10-Year Rule, but it was correctly removed!" he tweeted.

And there's more.

"If you took your 'RMD' early this year, well… stinks to be you. There is no mechanism in the law that automatically allows a later rollover of that amount, or allows the once-per-year rollover rule to be usurped," Levine explained.

Virus-Related Distributions

What's the "coronavirus-related distribution"?

"This is a new exception to the 10% early distribution penalty, available to certain individuals impacted by the current crisis," he said.

Some key details:

The distribution can be from an IRA or a plan;
It can be up to $100,000;
It must be taken in 2020.

" By default, the income is spread over… 3 years, unless you proactively elect to include it all in 2020 (note: if times are tough and income has significantly declined, this might actually be a better move," Levine said.

To be eligible, a taxpayer:

Must be diagnosed with COVID-19, or
Have a spouse or dependent similarly diagnosed, or
Experience adverse financial consequences as a result of being quarantined, furloughed, etc.

"Bottom line… I think the IRS is going to be very lenient on this one…," according to Levine.

Distribution Details

Starting on the day a taxpayer gets the coronavirus-related distribution, he or she has up to three years to repay the amount as a qualified rollover contribution (in one or more payments), he points out.

Plus, "Amended return(s) can be filed to claim refunds!" tweeted Levine. "There is also a provision to further expand plan loans," he said, noting:

"The max amount of a plan loan is doubled from 50k to 100k,
The loan may be for up to the present value of the participant's account,
Loan payments due from enactment until 12/31/20 can be delayed for up to 1 year."

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