The CARES Act and Expiring Changes For 2020


They say that all good things must come to an end, right?  And I think this past year shows us that, luckily, even bad things come to an end as well. To say 2020 has been a year most of us will never forget is an understatement. Even as we come to the end of the year, things remain vastly different from anything we’ve experienced before. The pandemic has changed the rules of how we live in many aspects. For example, for many of us, our holiday season won’t be spent crowding the malls, dashing from one holiday party to another, or making the usual trips to family gatherings. While I know a few Scrooge-like folks who are just fine with this, I think most of us are excited at the prospect of a better year in 2021 when we can breathe a sigh of relief that 2020 was temporary.  This is certainly true for the Cutters.  

But you know, how we view and treat our financial plans are no exception. With this year coming to a close, many of us need to pay special attention to the temporary financial retirement rule changes that came about due to the pandemic, which will soon expire. For many of us, there’s still time to take advantage of these short-term relief measures. So this week with our time together, let’s review them and what we can do to take full advantage of them before year-end.

As a refresher, in March of 2020, Congress passed the CARES (Coronavirus Aid Relief and Economic Security) Act. The Act contains several provisions that people could use for economic relief that are set to expire on December 31, 2020. The provisions in the Act allow a loosening of rules around withdrawal penalties and mandatory distribution from qualified retirement accounts. 

From now until December 31, 2020 individuals can take up to $100,000 from IRAs and qualified employer plans without being subject to the 10% pre-age 59-1/2 tax penalty. You will still owe ordinary income taxes on the distributions, but you can spread this tax over three years (2020, 2021, and 2022) to help soften the immediate tax burden. This is unique, since typically a distribution has to be accounted for solely in the year it is taken.

In addition, qualifying individuals are not limited to the usual 60-day rule for rolling the proceeds into another tax qualified account. You now have 36 months to roll the money into a new account. And this does not have to be an all-or-nothing rollover, either. You can roll over the full amount or a partial amount.

This includes all IRAs including traditional, ROTH, SEPs and SIMPLE plans. It can also include employer- sponsored plans such as a 401(k) but understand that it is not mandatory for employer plans to offer that option. You will need to check with your employer to see if they are making the withdrawal option available.

The CARES Act uses two basic criteria to determine whether an individual qualifies to use the provisions. The first qualification is whether an individual, spouse, or dependent is diagnosed with the Coronavirus. The second way an individual may qualify is if they experienced economic hardship as a result of the pandemic. The criterion includes whether an individual, spouse or household member has been quarantined, laid off or experienced reduced work hours, if they lost childcare services, if they are a business owner or operator who has been forced to close, if they are self-employed and experienced reduced work and income, or if they have had a job offer rescinded or deferred.

Even for those who believe they made it through 2020 intact or at least in a tolerable position, you still might want to consider if it makes sense to take advantage of the CARES Act provisions. As of this writing, they are set to expire at the end of year and there is no guarantee congress will extend them. While we all look forward to putting 2020 behind us, the arrival of vaccinations (or the ball dropping in Times Square on New Year’s Eve) doesn’t necessarily mean immediate economic growth.  

For older folks, the CARES Act gave them a one-year exemption from taking their RMDs (required minimum distributions) from their traditional IRA and other tax-qualified plans. For IRA account owners that have already taken RMDs in 2020, you can return the distribution or roll into another IRA. Even though individuals are not required to take RMDs, you can still make an annual QCD (Qualified Charitable Distribution) from your IRA up to $100,000. QCDs do need to follow certain rules but are not included in your taxable income.  

For those who are more fortunate and who also itemize their income tax deductions, the CARES Act is allowing a one-time charitable deduction of up to 100% of their adjusted gross income. Of course, it needs to be a legitimate charitable deduction, but those who use this provision can basically eliminate their tax liability for the year. Note that this is only allowable for those who itemize deductions.

The temporary CARES Act provisions may provide a financial bridge for those facing difficult financial circumstances caused by the pandemic. It also gives incentive to the charitably inclined to help the less fortunate. While in most years there are some changes to the rules affecting financial planning that stretch far into the future, this is 2020 and the rules are different. And just like the year itself . . . temporary.

So as always – be vigilant and stay alert, because you deserve more!

All of us at Cutter Financial Group wish you and your families a wonderful Holiday Season.

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, Mansfield & Southlake, TX. Jeff can be reached at

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