Jeran Van Alfen, CFP®
Covid-19 CARES ACT Update: How to Get Money for Your Personal Finances
While each of us have unique circumstances, there is no question that the global health crisis has affected all of our daily lives. This situation has been a reminder of just how connected we all are in our personal interactions and business operations. With the passing of the CARES Act, there are resources available for you to help with your personal finances.
As you read through the resources, please keep in mind that most of these resources are for individuals who are experiencing a drastic cut to their income and employment and it is extremely important to try not to disrupt your financial plan unless you are in this situation. As always, please contact us if you need to discuss your options.
Direct “economic impact payments” or stimulus checks will be made to many individuals. The date of these payments is not confirmed, but here are some details to know:
Payments will be made to individuals who:
Have a Social Security Number
Filed taxes in 2018 or 2019, or don’t earn enough to file but do receive Social Security
Earned less than $99,000 for individuals, $198,000 for married filing jointly, and $136,500 for filing head of household.
Not claimed as a dependent
The amount of payment will be based on your AGI from your most recent tax return (2018 or 2019). The maximum payment is $1,200 per individual and $500 for each dependent child under 16. The maximum payment applies for single filers with an AGI under $75,000 and those married filing jointly with an AGI under $150,000. Above these AGI thresholds, the payment will phase out $5 for each $100 above the AGI threshold until the limit above is reached.
What to do:
The government will use your tax filing information, so if you receive direct deposit from the IRS, the payment will be deposited in your account. If you do not use direct deposit, you need to make sure the address from your last tax return is still valid.
Direct deposit payments are expected to be made in mid-April, while paper checks are expected to begin being mailed out in May. Of course, the process of the paper checks could take a while.
What Not to Do!!
The government is not contacting you about this payment. This means that you do not need to respond to phone calls, emails, Facebook or other social media messages. These are scams. If the government has your tax information, they will send you a payment.
Delay in Student Loan Payments for 6 months
The Cares Act provides for those with Federal student loan debt to defer payments for 6 months without accruing additional interest. Keep in mind, if you have private student loans, you need to check with your financial institution to find out their terms for deferment.
Mortgage Deferral or Forbearance
Many loan servicing companies are providing options for loan forbearance. If you contact your mortgage provider, you can ask about their specific terms. Fannie Mae and Freddie Mac have announced a new deferment option.
However, if you are considering a forbearance or a deferment, please use caution and keep these items in mind:
The money will still need to be paid back. This means that the outstanding balance and interest will typically be added to the end of your loan.
In some cases, companies require the balance owed to be paid immediately when the forbearance ends.
No Required Minimum Distributions for 2020
If you are currently taking required minimum distributions because you are over 70.5 or have an inherited IRA account, you are not required to take your required minimum distributions this year! This also applies to those individuals who are turning 72 this year and would normally be required to start their RMDs. This is good news because with the market down, you will not be required to sell at a low and withdraw funds.
Penalty-Free Withdrawals from Retirement Plans:
Under normal rules, if you are under age 59 ½ you have to pay a 10% penalty in addition to income taxes for an early withdrawal from your retirement plan. However, the CARES Act allows you to take up to $100,000 between January 1, 2020 and December 31, 2020 without penalty. Also, this money can be paid back to your account over the next 3 years with payments made in addition to your normal contributions.
However, there is some fine print:
Eligibility for these penalty-free distributions requires you or a family member to be diagnosed with the virus, or you have to experience adverse financial consequences as a result of being laid off, unable to work, quarantined, or reduced hours.
Temporary increased limit on Retirement Plan Loans:
The Cares Act has increased the limit on 401(k) loans up to $100,000 or 100 percent of your vested balance whichever is lesser. If you have a current loan that is in repayment and is due this year, the Act provides a 1 year extension to repayment.
Unemployment Benefits Have Been Enhanced:
Typically, individuals are ineligible for unemployment for the first week that they are unemployed. This waiting period has been waived and the first week is now covered.
Normal unemployment benefits have been increased by $600 per week for up to 4 months
Unemployment compensation has been extended. If individuals reach the maximum amount of weeks under state law, the Act allows them to receive benefits for an additional 13 weeks.
Please do your research on the benefits that are available to you and let us know if we can assist.