The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a $2 trillion dollar economic stimulus package that will benefit 90% of Americans. There is much to this stimulus package so in this article I will cover what is available to individuals and retirees who are financially impacted due to the coronavirus pandemic. Later this week I will cover small businesses as we should have more information on the loan application process at that time.
I realize this is a lot of information. To help, Sea To Peak Financial Advisors is hosting a Zoom/web meeting for you or your friends or loved ones who may need help. You may access this link on Thursday at 1:00p.m. PT. The web meeting is limited to the first 100 persons who join. If you are a client, I will also be working with you directly on how this may impact you.
Individuals (including retirees) with incomes at $75,000 or below will receive payments of $1,200. For those who file as head of household, the limit is increased to $112,500. For couples the total income number is $150,000 and the payment is $2,400. Keep in mind this is adjusted gross income so it may not be your actual salary. There are phaseouts for people who have incomes above these levels. Additionally, there is a $500 payment for each child under the age of 17. The payment assessment will be based on either your 2018, 2019 or 2020 tax return.
If you qualify based on your 2018 income and have not filed your 2019 income, you have until July 15th to file your taxes. Even if your 2019 income is higher, you will not need to give the money back. If you qualify based on your 2019 income, but not your 2018 income, you should file your taxes as soon as possible. You will receive the benefit regardless, but if you can file before the payments are calculated, you will receive it when the payments go out this next quarter, likely May. Otherwise you will receive it back next year. If you only qualify for 2020, you will still receive the payment, but when you file your 2020 taxes next year. It will come in the form of a refundable tax credit. It goes without saying that no one should submit a false tax return to try and qualify as this is considered fraud.
Please note that payments will be sent via direct deposit if you have previously had these instructions on file with the IRS and if not, a check will be mailed to the address of record. If you have moved, please act now to update your address with the IRS as mail from the IRS is not forwarded. This IRS link has instructions on how to do this. For people currently receiving Social Security, the payments will go to the same place you receive social security.
For people who have lost their jobs, there is a large increase in unemployment payments for four months. Currently the average weekly state unemployment payment is approximately $385. The stimulus package increases this by $600 a week. Additionally, they have created a new category of unemployment to cover people who are not traditionally covered by unemployment such as independent contractors, freelancers and others who cannot find work because of the social distancing measures put in place as a result of the coronavirus pandemic. Also note that there are great incentives for businesses to keep people employed so if you or a loved one has been laid off, there is a chance you may be rehired due to new business incentives to retain employees. Additionally, there are provisions to extend unemployment benefits.
Utilizing Employer Sponsored Plans For Cash Needs
There are also provisions to be able to take distributions of up to $100,000 out of employer sponsored retirement plans or IRAs and you have the ability to split the taxation out over three years given withdrawals from traditional pre-tax money is taxed like ordinary income. If your income will be low for 2020 you can also opt to have it all taxed in 2020 at your lower income tax rate. These are the only two options. You will not pay a 10% penalty on these withdrawals. There is also no mandatory withholding so the first year’s tax will not be due until you file your 2020 taxes.
Alternatively, which may be a better option to preserve retirement funds for retirement, you could borrow from your employer sponsored plan. The maximum loan amount is increased to the lesser of $100,000 or 100% of your vested balance. Payments on these loans may be delayed for one year.
Student Loan Deferral
Another individual incentive is for federal student loan payments. These payments are deferred without interest for six months. You have to reach out and contact your servicer to take advantage of this option. This applies even if you trying to qualify for student loan forgiveness and is in fact, even more important in that situation as it essentially forgives an additional six months of payments.
For individuals who are also retirees or who have inherited a retirement account, required minimum distributions for 2020 are suspended. If you have already taken your RMD and it has been less than 60 days, you can do a 60 day rollover to move the funds back into your account. Please note that if you withheld taxes there is no way to get those funds back so you will need to make up the difference to get the full amount rolled back into your account. The taxes withheld will count towards your 2020 tax withholding, however. This option does not apply to inherited IRAs.
This suspended RMD year may present an opportunity to do a ROTH conversion or partial ROTH conversion. Each situation is individual so please speak with your tax or financial advisor to see if it applies to your individual situation.
Please feel free to join me on the Zoom call and share the link with others who may need help. You may access this link on Thursday at 1:00p.m. PT. The web meeting is limited to the first 100 persons who join.
This stimulus can only take care of your financial needs, but hopefully it eases the burden. Most importantly, please take care of your health. I am thinking of each of you.