Kelton Corcoran is a senior content marketing specialist at NaviPlan, the financial planning technology provider of choice for more than 140,000 financial professionals.
On March 25, the U.S. Senate approved the country’s largest-ever economic stimulus package, the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Bringing nearly $2 trillion in relief to individuals, businesses, healthcare, education, and state and local governments. The IRS expected more than 150 million Americans would qualify for direct payments up to $1,200 per individual.
Additionally, after roughly one month following the first arrival of these payments in April, the IRS has announced that 130 million stimulus payments have been received – totaling more than $200 billion.
Here is a breakdown of how to manage stimulus payments for clients in NaviPlan, along with other changes introduced in the CARES Act.
Adult individuals are eligible for up to a $1,200 payment and $500 per child. The amount of this rebate is phased out at higher income levels.
The IRS has confirmed that this payment will not increase taxable income for 2020 tax filings. Therefore, in NaviPlan, this can be entered as an income source with the Tax-free income type.
Special rules for retirement fund distributions
A number of changes are included in the CARES Act related to removing various restrictions and penalties around withdrawing from qualified accounts.
One of these changes found in NaviPlan allows for a pre-age 59.5 “coronavirus-related” withdrawal of up to $100,000 in 2020 that will not incur an early withdrawal penalty.
This can be modeled in NaviPlan via a Qualified Redemption with the Waive Early Withdrawal Penalty checkbox checked. Any distributions made as part of this must be repaid (to the clients themselves) within three years with manual savings strategies.
Partial above-the-line deductions for charitable contributions
The bill allows for up to $300 in charitable contributions to be an above-the-line deduction, meaning you don’t have to itemize to claim the deduction. Contributions must be cash donation(s) to qualified charities.
To model this in NaviPlan, use the Tax Details page and add a Miscellaneous Above the Line deduction.
Additional changes to be aware of for your clients are the increase of Adjusted Gross Income (AGI) limits from 60 percent to 100 percent, and the ability for RMD-applicable clients and Inherited IRA owners to no longer be required to withdraw their RMD in 2020.
For detailed information on how to model these changes within NaviPlan, visit the New in NaviPlan section in the Learning Center.
Stay connected with your clients
Alongside the changes brought by the CARES Act, advisors are facing new challenges when it comes to connecting with their clients. With stay-at-home orders still in place across much of the U.S., it has never been more important to make financial planning safe and accessible to the greater advisor community.
By leveraging the NaviPlan client portal to facilitate virtual meetings, advisors can help mitigate the impact on their practices during these times – and enable clients to fully understand, and act upon, their financial advice.
In this whitepaper, learn how FinTech can be implemented to solve the biggest pain points facing advisors in the areas of client engagement, advice delivery, and scaling advice complexity.