Good to Know: The CARES Act for the November CFP Exam

Good to Know

The Coronavirus Aid, Relief, and Economic Security (CARES) Act provided vitally needed relief for individuals and businesses. However, not all of the Act’s provisions relate directly to CFP Board’s testing priorities. The purpose of this blog is to emphasize those portions of the Act highlighted as “key” by CFP Board in its “CFP BOARD KEY ELEMENTS CARES ACT 2020,” available for download at https://www.cfp.net/-/media/files/cfp-board/cfp-certification/exam/cfp-board-cares-act-2020.pdf

Key Retirement Liquidity Provisions

These provisions include powerful current-year liquidity builders, including:

  • Reporting the income from “coronavirus-related distributions” taken in 2020 from qualified plans and IRAs over a three-year period
  • An increase in the maximum loan limit from qualified plans to $100,000
  • Waiver of:
    • Required minimum distributions for the 2020 tax year,
    • 10% premature distribution penalties arising from “coronavirus-related distributions” from 401(k) Plans and IRAs during 2020, and
    • 20% mandatory withholding on the taxable portion of “COVID-related” distributions taken in 2020 from qualified retirement plans.

Key Income Tax Relief

Individuals

  • Cash contributions to qualified public charities may be deducted up to 100% of adjusted gross income.
  • A charitable deduction for adjusted gross income (“above-the-line” deduction) of $300 is now available (taxpayers can take this deduction even if they do not itemize).

Businesses

  • Restrictions were temporarily relaxed on carryback of business net operating losses (NOLs). NOL carrybacks were eliminated by the Tax Cuts and Jobs Act but are now temporarily restored under CARES. A business may carryback net operating losses for up to 5 years arising from 2018, 2019 and 2020 losses. The carryback may be especially helpful for businesses with COVID-related business losses.
  • Tax refunds could result when net operating losses are carried back to a year in which the business paid income taxes on profits.

Potentially Less-Emphasized Portions of the Act

Any part of the Act is technically fair game on the November CFP Exam. However, CFP Board informs us that “…federal stimulus checks to individuals & families, temporary delay on federal student loan payments, and enhanced unemployment benefits...have planning applications, however, they have less impact on planning than the [Key] changes outlined...”

Disclaimer

The information presented herein is provided purely for educational purposes and to raise awareness of these issues; it is not meant to provide and should not be used to provide legal or financial advice to clients. It is not meant to guarantee what will or will not be included on any CFP® Exam. There are variations, alternatives, and exceptions to this material that could not be covered within the scope of this blog.