CARES Act for Attorneys

The CARES Act contains several key provisions helpful to attorneys and law firms.

On March 27th, the President signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act.  These rules are brand new and include significant tax and cash flow planning opportunities.  These are just a few of the provisions.  You should consult with your tax professional to understand the final rules and regulations and how it might affect you.  I have bolded potential planning opportunities that you may want to consider:

  • Individuals who had up to $75,000 in adjusted gross income in 2019 (or 2018 if 2019 is not filed) will receive a one-time payment of $1,200, while married couples with AGI up to $150,000 will get $2,400. Additionally, taxpayers will receive an additional $500 for each qualified child, while individuals and families with income above their respective thresholds will see their relief payments reduced by $50 for every $1,000 in AGI.

Delay filing your 2019 tax return if you would qualify on your 2018 tax return.

  • Small businesses (up to 500 employees) are eligible for SBA 7(a) small business loans up to a maximum of the lesser of $10 million, or 2.5 times the average monthly payroll costs over the previous year (excluding amounts over $100,000 per person). The loan can be used to cover payroll, rent, utilities and group healthcare insurance premiums.  The loan may be forgiven is specific criteria are followed.  The loan interest is set at a maximum of 4%, making this loan incredibly affordably.

If you follow the guidelines, your loan may be 100% forgivable, making this free money to keep your employees on the payroll.  Contact your local banker immediately to get started as the bankers are going to be incredibly busy helping people. 

  • If you do not qualify for the loan program, you may qualify for tax credits equal to 50% of wages paid to each employee, up to a maximum of $10,000 per employee. You must show a decrease in revenue in one quarter of more than 50% compared to the same quarter in 2019. The rules are very complicated, so check with your tax professional.

Small businesses may receive a credit of up to $5,000 for each employee that they pay over $10,000.  You should begin to run pro-forma calculations on your revenue to determine if you qualify for this benefit.

  • Required minimum distributions are waived in 2020, and taxpayers who have already taken their RMDs for 2020 have the option of returning them, if they so desire.

Consider altering your RMD payments this year to reduce your tax liability.  Utilize other sources of cash flow besides IRAs.

  • The 2019 IRA contribution deadline has been extended to July 15, 2020.

Consider contributing additional amounts to an IRA, including Roth IRAs. If you are not eligible due to income limitations, consider non-deductible contributions and if possible, a roth conversion strategy.

  • Federal Student Loan payments can now be deferred until September 30, 2020. No interest will accrue during this time.

Check to see if your student loans qualify.  They must be federal loans.  Private loans do not apply, but many lenders may follow the Federal rule.  Check with your lender.  Also consider paying down student loans now.  You will effectively be reducing your loan principal by 100% while interest is at zero percent.

  • The Act provides for special “coronavirus-related” distributions from IRAs and employer-sponsored retirement plans of up to $100,000 that are exempt from the 10% early withdrawal penalty, can be repaid over a three year period and are includable in taxable income over a three year period to the extent not repaid. A coronavirus-related distribution means a distribution made on or after January 1, 2020 and before December 31 and generally may not exceed $100,000 in total for an individual.    The term “coronavirus-related” distribution means any distribution from an eligible retirement plan made to an individual:
    • who has been diagnosed with COVID-19 (as confirmed by a CDC-approved test),
    • whose spouse or dependent is diagnosed with COVID-19, or
    • who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury.
    • The Act permits the Plan Administrator to rely on the participant’s certification that they qualify for the distribution.

If you need cash flow now, you can take a non-taxable distribution without penalty and repay it within a 3 year period.

  • 401(K) loans have a temporary increase in the loan limit of up to the lesser of $100,000 or 100% of the participant’s vested account. (The usual limit is the lesser of $50,000 or 50% of the participant’s vested account balance). This provision applies to loans made during the next 180 days.

Consider a 401(k) loan carefully and use some cash flow modeling software to determine if this is in your best interest.  This is very tempting, but probably not a good time to take a 401(k) loan.

  • Any loan payment due on any outstanding loan between now and December 31, 2020 is delayed for one year. The five-year repayment timeframe is extended for one year and interest continues to accrue on the loan during the delay period.

If you currently have an outstanding 401(K) loan, contact your service company to suspend payments for all of 2020.

  • $300 above the line charitable deduction- Taxpayers who do not itemize are now eligible to deduct up to $300 from a cash only contribution to a qualified charity.  This does not include donor advised funds or 509(a)(3) supporting organizations.

Consider making up to a $300 charitable donation to help out your community.  This is new if you do not itemize.

  • The AGI limitation on qualified cash contributions to charity (for those who itemize) has been temporarily increased to a maximum of 100% of AGI.  In essence, one could wipe out their entire tax liability for 2020 by donating cash to charity.

If you have cash available you can significantly reduce your current tax liability.  Utilize some cash flow planning software to determine how much this can help.

Self-employed individuals may be eligible for pandemic unemployment insurance. If you are self-employed, you now may be eligible for some unemployment benefits which has never happened before.

As you can see, the provisions in this new bill can be incredibly helpful to you, your business, and your family.  The rules are complicated and be sure to follow them in order to be eligible for these benefits. 

Our team at Envision Wealth Management is ready to help you and your business.  If you would like to speak with me and brainstorm how this new law can help you, I am available for 15 minute phone calls here: 

Jonathan Muhlendorf Schedule




Does The Secure Act Affect Me?

Congress recently passed—and the President signed into law—the SECURE Act, landmark legislation that may affect how you plan for your retirement. Many of the provisions go into effect in 2020, which means now is the time to consider how these new rules may affect your tax and retirement-planning situation. However, clients, financial advisers and tax professionals must pay close attention to the effective dates of the various provisions of the SECURE Act. For example, some of the SECURE Act’s provisions became effective prior to 2020.

Here is a look at some of the more important elements of the SECURE Act that have an impact on individuals. The changes in the law might provide you and your family with tax-savings opportunities. However, not all of the changes are favorable, and there may be steps you could take to lessen their impact.

Setting Every Community Up for Retirement Enhancement Act (SECURE Act)

Selected key provisions affecting individuals:

Repeal of the maximum age for traditional IRA contributions.

Before 2020, traditional IRA contributions were not allowed once the individual attained age 70½. Starting in 2020, the new rules allow an individual of any age to make contributions to an IRA, if the individual has compensation, which generally means earned income from wages or self-employment.

Required minimum distribution age raised from 70½ to 72.

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Before 2020, retirement plan participants and IRA owners were generally required to begin taking required minimum distributions, or RMDs, from their plan or IRA by April 1 of the year following the year they reached age 70½. The age 70½ requirement was first applied in the retirement plan context in the early 1960s and, until recently, had not been adjusted to account for increases in life expectancy.

For distributions required to be made after December 31, 2019, for individuals who attain age 70½ after that date, the age at which individuals must begin taking distributions from their retirement plan or IRA is increased from 70½ to 72. In addition, certain individuals working past age 72 may be able to defer RMDs even further.

Partial elimination of stretch IRAs.

For deaths of plan participants or IRA owners occurring before 2020, beneficiaries (both spousal and nonspousal) were generally allowed to stretch out the tax-deferral advantages of the plan or IRA by taking distributions over the beneficiary’s life or life expectancy (in the IRA context, this is sometimes referred to as a “stretch IRA”).

However, for deaths of plan participants or IRA owners beginning in 2020 (later for some participants in collectively bargained plans and governmental plans), distributions to most nonspouse beneficiaries generally are required to be distributed within ten years following the plan participant’s or IRA owner’s death. So, for those beneficiaries, the “stretching” strategy is no longer allowed.

Exceptions to the 10-year rule are allowed for distributions to (1) the surviving spouse of the plan participant or IRA owner; (2) a child of the plan participant or IRA owner who has not reached majority; (3) a chronically ill individual; (4) a disabled beneficiary; and (5) any other individual who is not more than ten years younger than the plan participant or IRA owner.

Those beneficiaries who qualify under this exception generally may take their distributions over their life expectancy (as allowed under the rules in effect for deaths occurring before 2020).

Note: This particular provision of the SECURE Act can significantly affect your current retirement plans and planning for beneficiaries of your IRAs and certain qualified plans (e.g., IRC section 401(k)) upon your death.  For individuals who died prior to 2020, the SECURE Act’s impact will be more limited regarding stretch IRAs. 

If your retirement and/or estate plan include designated beneficiaries, other than those enumerated exceptions in the paragraph above, then you need to determine whether your goals and objectives are impacted by the SECURE Act.  For example, if your designated beneficiaries include adult children, a trust, etc., the SECURE Act will affect such beneficiaries’ ability to accomplish a stretch IRA strategy.

 While a stretch IRA strategy may be limited under the SECURE Act, there are other strategies that can help extend a beneficiary’s recognition of income. In addition, there are methods to replenish (or replace) the benefits lost, that were available to designated beneficiaries prior to the passage of the SECURE Act.

Expansion of IRC section 529 education savings plans to cover registered apprenticeships and distributions to repay certain student loans.

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An IRC section 529 education savings plan (a 529 plan) is a tax-exempt program established and maintained by a state, or one or more eligible educational institutions (public or private). Any person can make nondeductible cash contributions to a 529 plan on behalf of a designated beneficiary. The earnings on the contributions accumulate tax-free. Distributions from a 529 plan are excludable up to the amount of the designated beneficiary’s qualified higher education expenses.

Before 2019, qualified higher education expenses didn’t include the expenses of registered apprenticeships or student loan repayments.

However, for distributions made after December 31, 2018 (the effective date is retroactive), tax-free distributions from 529 plans can be used to pay for fees, books, supplies, and equipment required for the designated beneficiary’s participation in an apprenticeship program. In addition, tax-free distributions (up to $10,000 per beneficiary) are allowed to pay the principal and/or interest on a qualified education loan of the designated beneficiary, or a sibling of the designated beneficiary. Be aware that some states may not follow the federal law changes relating to 529 plans.

Kiddie tax changes for gold star children and others.

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In 2017, Congress passed the Tax Cuts and Jobs Act (TCJA), which made changes to the so-called “kiddie tax,” which is a tax on the unearned income of certain children. Before enactment of the TCJA, the net unearned income of a child was taxed at the parents’ tax rates if the parents’ tax rates were higher than the tax rates of the child.

Under the TCJA, for tax years beginning after December 31, 2017, the taxable income of a child attributable to net unearned income is taxed according to the brackets applicable to trusts and estates. Children to whom the kiddie tax rules apply and who have net unearned income also have a reduced exemption amount under the alternative minimum tax (AMT) rules.

There had been concern that the TCJA changes unfairly increased the tax on certain children, including those who were receiving government payments (i.e., unearned income) because they were survivors of deceased military personnel (“gold star children”), first responders, and emergency medical workers.

The new rules enacted on December 20, 2019, repeal the kiddie tax measures that were added by the TCJA. So, starting in 2020 (with the option to start retroactively in 2018 and/or 2019), the unearned income of children is taxed under the pre-TCJA rules, and not at trust/estate rates. Additionally, starting retroactively in 2018, the new rules also eliminate the reduced AMT exemption amount for children to whom the kiddie tax rules apply and who have net unearned income.

Penalty-free retirement plan withdrawals for expenses related to the birth or adoption of a child.

Generally, a distribution from a retirement plan must be included in income. Unless an exception applies (for example, distributions in case of financial hardship), a distribution before the age of 59½ is subject to a 10% early withdrawal penalty on the amount includible in income.

Starting in 2020, plan distributions (up to $5,000) that are used to pay for expenses related to the birth or adoption of a child are penalty-free. That $5,000 amount applies on an individual basis, so for a married couple, each spouse may receive a penalty-free distribution up to $5,000 for a qualified birth or adoption.

Taxable non-tuition fellowship and stipend payments are treated as compensation for IRA purposes.

Before 2020, stipends and non-tuition fellowship payments received by graduate and postdoctoral students were not treated as compensation for IRA contribution purposes, and so could not be used as the basis for making IRA contributions.

Starting in 2020, the new rules remove that obstacle by permitting taxable non-tuition fellowship and stipend payments to be treated as compensation for IRA contribution purposes. This change will enable these students to begin saving for retirement without delay.

These are just some of the SECURE Act’s significant changes that may affect your current retirement and/or estate plans. Please contact us so we can help tailor a plan, with your other advisers, that will work best for you.


The content of this material was provided to you by Lincoln Financial Advisors Corp. for its representatives and their clients. Lincoln Financial Advisors Corp. and its representatives do not provide legal or tax advice. You may want to consult a legal or tax advisor regarding any legal or tax information as it relates to your personal circumstances.

Navigating The Top 5 Retirement Risks

A successful retirement plan begins, of course, with making prudent savings and investing decisions long before you contemplate retiring. But of equal or even greater importance is how you manage your money after you’ve left your primary career and begin to turn to your investments to provide the income that supports your lifestyle.

To boost the chances that your savings will let you live comfortably in retirement, there are five primary areas of risk that you need to address:

Timing and Withdrawals: The amount you withdraw from your retirement portfolio and when you do so are two of the main determinants of how long the portfolio will last. You want to minimize drawing on your capital in a weak market since you’ll have less capital for the rebound. Your annual withdrawal rate should be smaller than your average annual return less inflation. Of course, to be conservative, you could bring it down even further, and your assets may continue to grow positively even though you’re making withdrawals.


  • Market Volatility: You need to position your portfolio to withstand inevitable swings in the market, and the way to do this is through diversification and asset allocation – holding a combination of stocks, bonds, cash and alternative investments that matches your risk profile. Returns on these investments should be non-correlated, so that when one area is down, another area is up. In retirement, you need diversification to perform a balancing act of having enough growth-oriented investments toward helping achieve acceptable long-term returns and bonds and other fixed income securities to provide steady income. Annuities could also make sense to provide at least a portion of your retirement income.


  • Longevity: The good news is that you have a good chance of living to a ripe old age, but the risk here is essentially that you could outlive your assets. A woman born after 1973 has over a 20% chance of living to age 100[1].That means that if you retire at 65, you may need to plan for 35 years or more in retirement.


  • Taxes and Inflation: Don’t underestimate the ability of inflation to destroy spending power. Over the past 25 years, during which inflation has been fairly tame, the Consumer Price Index (CPI) – the cost of a basket of goods and services determined by the Bureau of Labor Statistics – has more than doubled. If inflation accelerates to 6%, prices would double in about 12 years.


  • Health Care Costs: The CPI is often not the most accurate measure of your personal inflation rate, since you may spend disproportionately on health care as you age. These costs have traditionally run at double or triple the overall rate of inflation and are not under control. In addition, consider long-term care insurance as a way to help pay for some of the potential nursing home costs as you get older.


Writing the Next Chapter

Thanks to a combination of advances in medical technology and better lifestyle choices, Americans are living longer and more active lives. Nonagenarians (people between the ages of 90-100) are becoming commonplace. Enjoy your retirement years – however you decide to spend them. Spending some time with your financial advisor today can help you enjoy true financial security tomorrow.


Jonathan Muhlendorf, CFP® is a registered representative and investment advisor representative of Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor, offering insurance through Lincoln affiliates and other fine companies. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances. The content of this material was provided to you by Lincoln Financial Advisors Corp. for its representatives and their clients.  CRN-1713971-021717

1.Department for Work and Pensions, 2011