The Economic Impact of COVID-19: Next Steps For Those Struggling Financially

The coronavirus has affected us all in many ways.  This pandemic has had an immense impact on our physical well-being and our mental health, as well as our finances. This virus has spread throughout the globe and as many businesses are forced to cease operation, people worldwide are losing jobs at record rates.

Roughly 22 million Americans filed unemployment claims over a four-week period starting March 14 – marking a record-breaking high for the U.S. Department of Labor.1 These numbers are unprecedented as everyone everywhere struggles to make ends meet amidst this widespread pandemic.    

For those struggling financially, how do we begin recovering from this? Here are some critical next steps for those impacted by the first-hand economic effects of the COVID-19 pandemic. 

Step #1: Reevaluate Your Spending 

Whether you suddenly have a stop in income, a decrease in your paycheck or you’re now reliant on financial assistance from the government, any change in your normal cash flow is a reason to look at your spending.

Even though it may seem obvious, it should be done immediately and with care. You should look over your weekly or monthly budget to determine any non-essential costs that can be eliminated. Since many businesses you may have frequented are likely not open anyway, you should consider reallocating any money normally budgeted for this to cover other necessary expenses.  Any money that may have been budgeted for a night out at a restaurant or a movie ticket could be used to start or contribute to an emergency fund instead.

Step #2: Acknowledge the Change

These times are unprecedented and are affecting the lives of nearly everyone across the globe. We are all fighting the spread of a deadly virus while people in a wide variety of industries – hospitality, retail, food, travel and more – have been left jobless for the foreseeable future.

Our current circumstances are likely to have made many stressed, angry, sad and devastated emotionally. When it comes to standing tall and moving forward financially, the sooner you can recognize the emotional toll these global events have had and come to terms with the “new normal,” the sooner you can begin planning ahead. 

Part of this acceptance is recognizing any bad habits you might have, specifically financial spending habits triggered by stress. If you like to “take the edge off” with online shopping or use eating out as a way to cheer yourself up, now is a good time to practice restraint.  When you become aware that these are emotional responses, you can try to come up with other ways this money may be better spent, such as paying off debt, putting it into savings or creating an emergency fund.  

Step #3: Be Aware of Changing Policies

Both federal and state governments have been working hard to accommodate out-of-work citizens. Legislation has been passed in an effort to amp up benefits for unemployed individuals.  Some local governments have made it illegal for power and utilities to be shut off due to a missed payment during the pandemic and others have urged landlords to halt rent payments temporarily.

Even some insurance agencies and gyms have paused memberships or reduced rates in an effort to accommodate out-of-work individuals. Given the current situation with so many struggling, many companies have created more lenient payment policies. If you are unable to pay certain monthly bills, you should begin contacting those companies or agencies immediately since they may be willing to assist you.  

The COVID-19 pandemic has created a great feeling of uncertainty about the future for most of us.  If you are struggling financially, you are certainly not alone. There are resources available to you now, such as stimulus checks and unemployment insurance, to help make this time a little easier. However, if you still have concerns about how to move forward financially during these trying times, please contact us. We are here to help and we are all in this together!

  1. https://www.dol.gov/sites/dolgov/files/OPA/newsreleases/ui-claims/20200632.pdf

Coronavirus and Student Loan Debt: What You Need to Know

By the end of 2019, student loan in America reached $1.48 trillion.  There were approximately 45 million borrowers across the United States.1  The COVID-19 pandemic has created even greater financial instability for many Americans and those that have student loans may have more difficulty paying them than ever before.  

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was recently enacted to provide a wide array of assistance for families and businesses.  The legislation also made some important changes to assist federal student loan borrowers. 

Here are some answers to a few important questions regarding student loan debt during the current pandemic: 

Question #1: Are Interest & Payments Suspended on All Student Loans?

The suspension of payments applies only to student loans that are held by the federal government. However, your FFEL (Federal Family Education Loan) lender or school may suspend interest and payments voluntarily, but they are not required to do so. 

Regarding your federal student loans, all interest and payments are suspended through September 30, 2020.2 

The benefits authorized by the CARES Act do not apply to private student loans that are owned by banks, credit unions, schools or other private entities. If you are trying to suspend payments to these institutions, you will need to contact them directly to find out what your options are. 

Question #2: Should I Apply to Suspend My Payments or Interest?

Until September 30, 2020, there will be no interest accrued or payments due for federal student loans.2 There is no action required on your part as these payments will be stopped automatically.  

Question #3: What Should I Do if I’m Behind on Payments?

On March 25, 2020, the Department of Education announced that it would not be withholding federal tax refunds, Social Security payments or garnishing wages from those who have defaulted on their federal student loan payments.3 In addition, private collection agencies contracted by the government will put a pause on attempting to contact defaulted borrowers. 

No defaulted federal student loan will collect interest until September 30, 2020.3

Many of us are experiencing a certain level of financial stress as we navigate this “new normal” through the COVID-19 pandemic. If you are able to continue to make regular payments to your federal student loans, it is beneficial in the long-run.  However, it is important to know your options have changed. If you have any questions relating to your student loan payments or other financial matters, please contact us.  We are here to help! 

  1. https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/hhdc_2019q2.pdf
  2. https://www.congress.gov/bill/116th-congress/house-bill/748
  3. https://studentaid.gov/announcements-events/coronavirus#defaulted-loan-questions

Inheriting Money Attitudes – Are Financial Habits Learned?

Whom we become as adults is largely influenced by how and by whom we are raised. Our parents shape us in many ways. If you are given chores as a child, you are more than likely to become an independent worker as an adult. If you live in a house where there are lots of arguments, you are more likely to struggle to form healthy relationships on your own.  As we consider that these types of characteristics are often learned as we grow up, does how we are raised also impact our finances?  A recent survey gives us a better understanding of how certain financial upbringings can shape our money attitudes as adults.

EARLY INFLUENCE

According to over three-quarters of those surveyed, parents influenced their financial habits as adults and those in good current financial standing were the most likely to have had some parental influence at an early age.  Those with bad financial standing also claimed that their parents influenced their financial habits.

For some reason, many parents shy away from money conversations with their children, even though it could have a positive influence on their financial habits. Over half of those surveyed said their parents never talked to them about the value of their financial accounts or life insurance or whether they had investments or debt. If these topics were discussed, it typically wasn’t until the children were adults themselves. Of the parents who did talk to their children about money, it was most commonly about their general financial standing and occurred around age 15.

FINANCIAL EMERGENCY DISCUSSIONS

Research suggests that talking to your children about the scarier side of money can be quite impactful. Respondents whose parents talked to them about the possibility of financial crises or recessions as children were more likely to be in good financial standing as adults. A key component of financial security is having cash resources you can tap in case of a financial emergency. This is why it’s important to talk to your children about financial crises or recessions, like the “dot-com bubble” that changed the way many baby boomers viewed investing, or the Great Recession that scarred millennials. Now, the COVID-19 global pandemic is likely to have a similar impact on Generation Z. Discussing these worst-case scenarios increases the likelihood that your children will plan ahead with an emergency fund as adults. 

PRINCIPLES FOR FINANCIAL STABILITY

Teaching your children financial life lessons could reduce the possibility of entering into credit card debt. According to our respondents, people whose parents taught them basic financial life lessons had less credit card debt than those whose parents didn’t teach them anything about money. The most common financial lesson parents taught their millennial children was the difference between a need and a want.  Despite having received the most financial education from their parents, millennials reported the highest instance of being worse off financially than their parents.  However, the majority of millennials thought they would eventually be better off than their parents. Their financial optimism may be due to the fact that nearly one-third of millennials received a pay raise in the past 12 months. 

The least commonly imparted financial lesson for all generations was how to invest, which is unfortunate given those whose parents did teach them how to invest typically reported having the highest income and estimated net worth. When it comes to gender, parents were especially negligent in discussing investing where their daughters were concerned; men were 35% more likely than women to have been taught to invest. Men were also more likely to have been taught about financial goal setting. One reason for the discrepancy could be that mothers are more likely to teach their daughters about finance, thus causing traditional gender roles to get passed down from generation to generation. However, when it comes to generational changes, many millennial women have made strides in income and now earn more than their mothers.

SPENDING STYLES

The survey results suggested a connection between parents’ spending style and their children’s style. The more responsible a parent is with his or her spending, the more likely their children are to be responsible spenders themselves. Over half of respondents whose parents only spent money when they could afford it reported being debt-free today, compared to only 42% of respondents whose parents often spent beyond their means. Children whose parents were conservative spenders, often choosing to forgo luxuries even when they could afford it, were the most likely to have an emergency fund as an adult and children whose parents only spent when they could afford it were slightly less likely to have emergency funds as adults. Having a parent who often spent beyond their means can lead to more debt and less in emergency funds, but the majority of children brought up in such households said they’ve done better for themselves as adults. Children of responsible and conservative spenders were far more likely to emulate their parents’ spending habits as adults. 

CREATING A BETTER FINANCIAL FUTURE

How we raise our children has a formative impact on who they become as adults. If you teach them how to save and invest, they are more likely to become financially responsible adults. A financial education should be a key aspect of any child’s upbringing. It is important to facilitate healthy conversations about money with our children so they are prepared for the important financial life lessons as they grow up.  Teaching key financial tools to our children will enable them to budget, manage their finances and plan for their futures as adults.  If you have any questions relating to teaching your children about early financial habits, please contact us – we are here to help!

The CARES Act Has Waived RMD Distributions for 2020 – What You Should Know

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was created in response to the COVID-19 pandemic and was signed into law on March 27, 2020. COVID-19 has had a tremendous impact on the financial and physical health of Americans and businesses across the country. There are many features of this new law, but one specific change to required minimum distributions (RMDs) has presented an interesting opportunity for retirees. 

The CARES Act – RMDs 

In Section 2203 titled, “Temporary Waiver of Required Minimum Distribution Rules for Certain Retirement Plans and Accounts,” those who are typically required to take minimum distributions from their retirement savings accounts will not be required to do so for the remainder of 2020.1  This will affect anyone who would normally have to take an RMD in 2020, whether it’s coming from a company 401(k), 403(b) or an IRA. 

Back in December 2019, the SECURE Act was passed which changed the age at which an individual is required to begin taking minimum distributions. According to the IRS: “If you reached the age of 70½ in 2019 the prior rule applies, and you must take your first RMD by April 1, 2020. If you reach age 70 ½ in 2020 or later you must take your first RMD by April 1 of the year after you reach 72.”2

However, the CARES Act has put a pause on RMDs – even for those who turned 70 ½ in 2019. 

The CARES Act – Inherited IRAs

Even though the language of the CARES Act does not mention Inherited IRAs specifically, it does say RMDs have been put on pause for all retirement accounts. Unless further clarification is presented, it is implied that those who have inherited an IRA are not required to take RMDs in 2020.

I’ve Already Withdrawn Money – Can I Return It?

This change to RMDs is valid for the entire year of 2020, starting January 1, but the CARES Act did not go into effect until the end of March. If you had already taken your RMD for the year, you can not return it. However, if you have taken an RMD within the last 60 days, you do have the option to roll this amount over into an IRA. This option can only be done once in a 12-month period, but it may be beneficial for those who took their RMD just before the law was passed. It should be noted that this 60-day rollover option is not available to those withdrawing from an inherited account.

Should I Skip My RMD In 2020?

The biggest advantage of skipping your RMDs for 2020 is a reduced tax bill. If you choose to take your RMD as usual, this money taken out would count as income, so you would have a higher tax bill next year. In a time where many are facing critical financial struggles, the government is looking to ease financial stress for retirees by allowing them to skip RMDs this year. 

It is also important to note that RMDs are based on “the account balance as of the end of the immediately preceding calendar year divided by a distribution period from the IRS’s ‘Uniform Lifetime Table,’” according to the IRS.3  In other words, your RMD would be determined based, in part, on the account balance as of December 31, 2019 – a time in which markets were strong and nearing a peak. Since then, the market has experienced general economic volatility and waiting to take RMDs until 2021 will hopefully give retirees a chance to see their accounts regain some of those lost values. Taking the money out now means retirees would be left paying taxes on value that no longer exists in their accounts.

One of the aspects of The CARES Act has presented retirees with a potentially advantageous opportunity. While those that need are still able to withdraw from their retirement accounts, those who typically have RMDs are not required to take them until 2021. If you have any questions about whether or not to take your RMDs this year, please contact us – we are here to help!  

  1. https://www.congress.gov/bill/116th-congress/house-bill/748/text
  2. https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions
  3. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

An Overview of the Newly Passed $484 Billion COVID-19 Relief Package

Earlier today (Friday, April 24, 2020), President Donald Trump signed the Paycheck Protection Program and Health Care Enhancement Act. This additional $484 billion relief package comes less than a month after the historic $2 trillion Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, which offered relief funds for businesses, families, unemployed individuals and others affected by the current pandemic. This new legislation is more restricted in scope, focusing primarily on replenishing funds for the Paycheck Protection Program and offering more financial relief for hospitals and healthcare workers across the country. The specifics of this relief package and how it may pertain to you, your business and your local healthcare facilities are detailed here.

Hospitals, Health Systems & Care Providers

This bill is allocating an additional $75 billion to go toward hospitals, health care providers and systems across the United States. As a part of the “Public Health and Social Services Emergency Fund,” this money is meant to reimburse providers for related expenses or revenue lost as a direct result of COVID-19.1 This money can not be used in cases where reimbursements have already been received through other means.  Providers who provide diagnoses, treatment or care for individuals with possible or actual cases of COVID-19 are eligible to access these funds. 

Such healthcare providers include:

  • Public hospitals
  • Medicare and Medicaid enrolled suppliers or providers
  • For-profit hospitals and healthcare providers
  • Not-for-profit hospitals and healthcare providers1
Research and Testing For COVID-19

In addition to the above, the “Public Health and Social Services Emergency Fund,” will receive $25 billion “to prevent, prepare for, and respond to coronavirus” in the form of research, development, manufacturing, purchasing, administering and testing individuals who may be currently infected or previously exposed to the virus.1 This fund is also meant to help healthcare providers procure additional protective equipment necessary to administer tests safely. 

Here’s how the $25 billion will be split amongst healthcare facilities and researchers:

  • $11 billion for states, localities, territories, tribes, tribal organizations, urban Indian health organizations or health service providers to tribes.
  • $4.25 billion for states, localities and territories to be divided formulaically based on the relative number of COVID-19 cases.
  • $2 billion to states, localities and territories in accordance with the Public Health Emergency Preparedness agreement. 
  • $1.8 billion for the National Institutes of Health – Office of the Director.
  • $1 billion for the Centers for Disease Control and Prevention (CDC).
  • $1 billion to assist healthcare providers testing uninsured patients.
  • $1 billion for the Biomedical Advanced Research and Development Authority.
  • $750 million for tribes, tribal organizations, urban Indian health organizations or health service providers to tribes, in accordance with the Director of the Indian Health Service.
  • $600 million in grants through the Health Resources and Services Administration – Primary Health Care.
  • $500 million for the National Institutes of Health – National Institute of Biomedical Imaging and Bioengineering.
  • $306 million for the National Institutes of Health – National Cancer Institute.
  • $225 million for rural healthcare clinics looking to expand their COVID-19 testing capabilities.
  • $22 million for the “Department of Health and Human Services – Food and Drug Administration – Salaries and Expenses.”1

The Department of Health and Human Services Secretary will also be required to issue a report every 30 days that includes the number of cases, hospitalizations and deaths as a result of COVID-19. In these mandatory reports, the Secretary will be required to provide distinguishing demographic characteristics such as race, sex, age, ethnicity, etc. until the health emergency has ended.1  

The Paycheck Protection Program

This new legislation will make an additional $320 billion available to businesses affected by the COVID-19 pandemic. As a reminder, the Paycheck Protection Program is designed to assist small businesses with 500 or fewer employees. Qualifying businesses may receive up to $10 million in loans administered by banks or other lenders, and the interest rate would not exceed one percent.2 

The Paycheck Protection Program offers qualified employers the potential to receive loan forgiveness if at least 75 percent of the money received is used to maintain payroll through June of 2020. They may also use the loan to pay interest on mortgages and rent and utilities.2 In order to be eligible for loan forgiveness, the business must maintain the same number of employees (equivalents) in the eight weeks following the date of origination of the loan as it did from either February 15, 2019 through June 30, 2019, or from January 1, 2020 through February 29, 2020.3 

Small Business Administration

$62.1 billion will be granted to the Small Business Administration to assist small businesses who have been hit hard by the current pandemic.1 

This amount will be broken down by:

  • $2.1 billion in salaries and expenses
  • $50 billion for the “Disaster Loans Program Account” to cover the cost of direct loans authorized by the SBA
  • $10 billion for emergency EIDL grants1   

The newly passed Paycheck Protection Program and Health Care Enhancement Act is designed to assist those who have been hit hard by this global pandemic – small businesses forced to cease or reduce operations and healthcare providers on the frontlines. If you’re a small business owner hoping to take advantage of these available funds, refer to official government sites, such as the SBA’s Guidance & Loan Resources for further assistance.

As always, if you have any questions for us during this unprecedented time, please contact us – we are here to help and are all in this together!

  1. https://www.congress.gov/bill/116th-congress/house-bill/266/text
  2. https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program#section-header-4
  3. https://www.congress.gov/bill/116th-congress/house-bill/748/text

How To Manage Your Mental Health During A Quarantine

Living through a pandemic has created some very trying times for all of us – not just financially, but also physically, mentally and emotionally. Even if you aren’t a healthcare professional or other essential worker on the front lines, it’s still difficult to cope with the dramatic change in lifestyle and stress we’re all experiencing. 

Remaining in quarantine for an extended amount of time is difficult. We all react differently to stressful situations, but there are things we can all do to remain mentally strong. Here are some helpful tips to better manage your mental health while social distancing at home.  

Tip #1: Take Breaks from the News and Social Media

According to the Centers for Disease Control and Prevention (CDC), it’s important to take breaks from social media and the news.1

Even for those who want to stay informed, taking in too much information these days can be upsetting and stressful. Whether you are on social media, listening to the radio or watching the news, it’s hard to break your attention away from the current global crisis. It’s important to find a balance that allows you to stay informed without overwhelming yourself. Even if you typically check your social media accounts each morning, you may find yourself not wanting to be inundated with so much Covid-19 information first thing and might want to change up your daily routine a bit for the foreseeable future..

Tip #2: Remember to Exercise

As important as it is to stay on top of our physical health during this time, exercise can be just as important for our mental health. Whether it’s yoga, jogging or walking, riding your bike or hiking, participating in these physical activities allows you to take time for yourself and away from others and the news. Now that the weather is getting warmer, you may even be able to take your physical activity outdoors – just remember the social distancing rules while engaging in outdoor activities.

Tip #3: Practice Meditation

Even if you’ve never done it before, mediation is great way to practice self-care. Regular meditation can help anyone become more mindful and at ease. It can give you a sense of calm and physical relaxation, as well as improve your psychological balance and enhance your overall health and mental stability.2  

Tip #4: Make Sure You Are Connecting with Others

Even though we’re unable to physically be present with friends and family at the current time, it’s still possible to keep in touch with others virtually. You can set up a Skype, Zoom or Facetime meeting with your friends or catch up over the phone. You can also send good old-fashioned snail mail notes or cards to others. There are many ways you can connect and brighten someone’s day, because chances are your loved ones are feeling anxious as well. 

Tip #5: Try a New Hobby

With more time on your hands than ever, now is a great time to try something new. Whether it’s painting, knitting, photography or whatever else you’ve always had an interest in trying, it’s a great way to do something fun while clearing your head. If you are at home with children, you could also do age-appropriate crafts and activities as a whole family.  It’s also a perfect time to start a weekly family game night or start some 1000 piece family puzzles. 

Tip #6: Help Others

There are many ways to stay compliant with social distancing regulations and help others at the same time. Some ideas include: 

  • Offer to get groceries for at-risk neighbors and family members
  • Donate to local food banks 
  • Provide meals to local hospital workers
  • Make a monetary donation online

Helping others in this time of crisis not only helps the community around you, it also makes you feel good as well!

Tip #7: Get Plenty of Sleep

Sleep is a time to recharge your batteries, unwind from the day and prepare for tomorrow. Even if anxiety is keeping you up a night, getting the recommended seven to nine hours of sleep will help you to work better, feel better and stay healthy.3 

Tip #8: Eat a Balanced and Healthy Diet

Even though we are stuck inside more than usual, it isn’t an excuse to forego healthy eating habits. While it’s perfectly fine to enjoy some treats in moderation, make sure that you are still eating meals packed with protein, fruits and vegetables. Eating a healthy, balanced diet will help everyone in your household feel better both mentally and physically over the coming weeks. 

We hope that everyone stays healthy and safe while we are all doing our part to “flatten the curve” and ride out this pandemic. As we all endure the emotional and mental stress of the coming weeks, it’s comforting to know there are things we can do to support ourselves, our families and our communities during this time.  As always, if you have any questions, please feel free to email us or set up a time to talk.

  1. https://www.cdc.gov/coronavirus/2019-ncov/daily-life-coping/managing-stress-anxiety.html?CDC_AA_refVal=https%3A%2F%2Fwww.cdc.gov%2Fcoronavirus%2F2019-ncov%2Fprepare%2Fmanaging-stress-anxiety.html
  2. https://www.nccih.nih.gov/health/meditation-in-depth
  3. https://www.helpguide.org/articles/sleep/sleep-needs-get-the-sleep-you-need.htm

 

Staying At Home Could Save You Money

As the coronavirus pandemic has emptied out U.S. streets while Americans stay home, there are less drivers on the road.  Less driving means fewer car crashes and fewer car crashes means big savings for auto insurers. Two car insurers in the U.S., Allstate and American Family Mutual, have decided to pass those savings along to their customers.  

Allstate, the country’s fourth biggest car insurer, said it would give back $600 million in total to customers and American Family Mutual is planning to refund $200 million.  Both insurers have seen a huge drop in accidents as more and more people stay at home and off the roads. Compared with last year, claims were down 20% to 40% weekly from March 11 through April 3. In addition, the insurers estimate that policyholders drove 40% fewer miles in the last three weeks of March. With millions of households financially strapped during the lockdown, the refunds come at a good time for many.

Allstate will pay customers back in two ways – drivers in quarantine will receive refunds while most customers will be given a 15% discount on monthly premiums for April & May.  American Family is returning $50 per insured vehicle. Many insurers are extending payment plans and waiving late fees as ways to help customers through the tough times and Allstate said it also is providing its identity-theft product free for the rest of the year “to all Americans.”

The refunds of these two companies could put pressure on other insurers to also follow suit due to the decrease in driving.  Some other insurers, while not yet offering across-the-board pandemic rebates, can adjust premiums on a case-by-case basis for drivers who are suddenly not driving.  

With the amount of commuters now working from home, quieter roads lead to fewer accidents and therefore, fewer claims. Since the auto-insurance industry is a rare bright spot while many other industries flounder right now, it’s nice to see them passing some of their savings along to their customers.  For those stuck at home and struggling financially, these refunds are sure to help. However, if you have essential work that keeps you on the road, stay safe out there!

The Paycheck Protection Program – For Small Business Owners

Self-employed individuals and small businesses account for a large portion of our country’s economy and are often the ones suffering the hardest hits during a pandemic. On March 27, 2020, President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law, allocating funding to support the U.S. economy and workers through the coronavirus outbreak.

The legislation includes a number of proposals aimed at supporting small businesses.1 For those hit hard due to forced closures and a sharp downturn in foot traffic, this bill may provide some relief.

What Does the Package Include?

American small businesses are supported by the recently passed CARES Act in the following ways:

  • A $350 billion forgivable loan program (The Paycheck Protection Program) designed to encourage small businesses from laying off employees.
  • A delay in employer-side payroll taxes for Social Security until 2021 and 2022.
  • 50 percent refundable payroll tax credit on worker wages to incentivize businesses, including those with fewer than 500 employees, to retain their current workforce.
  • Sole proprietors and other self-employed workers may be eligible for the expanded unemployment insurance benefits the bill provides.
  • A portion of the $425 billion in funds appropriated for the Federal Reserve’s credit facilities will target small businesses.2

How Does the $350 Billion Paycheck Protection Program Work?

Under the stimulus package, the Small Business Administration (SBA) will oversee the Paycheck Protection Program. This program will distribute $350 billion to small businesses that meet certain requirements, and the loans will be made available to companies with 500 or fewer employees.3 

Businesses can receive loans up to $10 million, and these loans will be administered by banks and other lenders. Additionally, the Paycheck Protection loans will carry a maximum interest rate of up to just four percent.2

Currently, the SBA guarantees small business loans that are distributed by a network of more than 800 lenders across the country. The program creates a form of emergency loan that has the potential to be forgiven when used to maintain payroll through June of 2020. In order for the above amounts to be forgiven, the business must maintain the same number of employees (equivalents) in the eight weeks following the date of origination of the loan as it did from either February 15, 2019 through June 30, 2019, or from January 1, 2020 through February 29, 2020.1 The program also expands the network beyond the SBA so that more banks, credit unions and lenders can issue the appropriate loans.

If your business uses the loan funds for the approved purposes and maintains the average size of your full-time workforce based on when you received the loan, the principal loan will be forgiven, meaning you will only need to pay back the interest accrued.2 The primary purpose of these loans is to incentivize small businesses to refrain from laying off workers and ultimately rehire laid-off employees that have already lost jobs due to COVID-19.

What Types of Businesses Are Eligible For The Paycheck Protection Program?

The Paycheck Protection Program offers loans for small businesses with fewer than 500 employees, 501(c)(3) nonprofits with fewer than 500 workers and some 501(c)(19) veteran organizations. Food service businesses are also eligible if they employ fewer than 500 people per physical location.1 

Self-employed individuals, sole proprietors and freelance or gig economy workers are also eligible to apply for financial assistance during this time. Even without a personal guarantee or collateral, businesses that are struggling can receive a loan as long as they were operational on February 15, 2020.2

Eligible borrowers are required to make a good-faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19.

How Do I Get a Payroll Protection Loan?

The loan program will provide loans through SBA-approved private lenders. As banks are currently working on implementing this program, it’s important to check with your local bank to see where they’re at in the process. Those that are already approved by the Small Business Association may be quicker to put the loan program into place.

As a small business owner or self-employed individual, it’s always important to be aware of your options during challenging times. By using some of the new programs recently enacted, and the promise of keeping your workers employed, your small business can continue to thrive.

As always, if you have any questions related to The Paycheck Protection Program or if you have other concerns, please reach out – we are here for you!

  1. https://www.congress.gov/bill/116th-congress/house-bill/748/text
  2. https://www.help.senate.gov/imo/media/doc/CARES%20Section-by-Section%20FINAL.PDF
  3. https://www.npr.org/2020/03/26/821457551/whats-inside-the-senate-s-2-trillion-coronavirus-aid-package

The New 401(k) No-Penalty Withdrawals in the CARES Act

As part of the CARES Act, some of the rules about taking money out of your 401(k) are being temporarily lifted to help people affected by the coronavirus pandemic. While the added flexibility may help some ride out the crisis, there is some concern that some might be tempted to take out huge sums now—and, as a result, either put their eventual retirements in jeopardy or possibly leave themselves with a big tax bill.

Here is some important information regarding what has changed and how to approach your 401(k) as it relates to these changes.

What is a coronavirus-related 401(k) distribution? Is it really a no-penalty withdrawal?

One provision of the CARES Act relaxes the rules for taking money from your 401(k). Investors of any age can take out a “coronavirus-related distribution” of as much as $100,000 (or up to 100% of the balance) without paying early withdrawal penalties. The act also increases the maximum “loan” from your 401k to this amount (previously that was limited to $50,000 or 50% of an employee’s balance).

Who is eligible for a 401(k) coronavirus-related distribution?

Your company’s 401(k) plan sponsor will determine whether coronavirus-related distributions will be permitted, whether you meet the criteria for this type of distribution, and whether the amount you request fits the hardship you are facing.  Anyone who has contracted the virus, has had a spouse or a dependent contract the virus, or has experienced financial hardship because of it, would be considered eligible.

Is a coronavirus-related 401(k) distribution a loan?

No. Unlike a 401(k) loan that must be repaid, a coronavirus-related distribution does not need to be repaid. Employees can repay the distribution within three years without regard to annual contribution limits for their 401(k) plans, and that the repayment does not need to be made all at once. Any repayment of the distribution would be treated as a “rollover contribution” to the plan. But, any employee who takes a coronavirus-related distribution and does not pay it back will owe tax on the amount, through they will be able to pay the taxes owed over a three-year period.

Is it a good idea to take this new 401(k) distribution?

You should only take distribution from your 401(k) now if it’s your only option. The point of a 401(k) is that you are investing the money over a long-term period, so that the power of compound interest works in your favor throughout your career. So, since you’ll likely have to liquidate stocks to take money out now, this means selling when the market is down significantly.

Should I take my regular 401(k) distribution this year?

Another major provision under the CARES Act, is that required minimum distributions (RMDs) have been waived this year. If you can afford it, you should take advantage of not taking the distribution this year.

What if I take a 401(k) coronavirus-related distribution and then get laid off or furloughed?

Typically, if you take a loan from your 401(k) and then leave your company, you usually have to pay the money back immediately, or else it is considered a taxable distribution. But under the CARES Act, if an employee takes a coronavirus-related distribution and then leaves the company, the employee would not have to pay the distribution back.

If you are laid off, furloughed, or your hours are cut, you can only contribute to your 410(k) if you are still getting a paycheck. Also, if employees are being paid emergency sick leave or expanded family and medical leave under the Families First Coronavirus Response Act (FFCRA), those payments are eligible for salary reduction contributions to a 401(k) plan.

How is a 401(k) coronavirus-related distribution different from a hardship distribution?

Most plans allow for “hardship distributions” in, say, the case of a major medical event. But these differ from the current coronavirus-related distributions since they are taxed in the year taken, cannot be repaid to the plan, and are limited to the amount necessary to meet the financial need.

Should I keep contributing to my 401(k)?

If you can keep up contributions—or even increase them—during this time, you should.

What are the 401(k) contribution limits for 2020?

At the end of last year, the IRS announced that for 2020, the maximum contribution for individuals in 2020 would be raised to $19,500. The so-called “catch-up” contribution for employees age 50 and over was raised to $6,500. The limits on annual contributions to an IRA remained unchanged at $6,000 per year.

Does my employer have to keep providing a 401(k) contribution match?

There’s nothing in the CARES Act that addresses this.  Employers can amend their 401(k) plans to stop making matching contributions and they should promptly notify employees of any changes.

If you have any questions relating to your 401(k) or have other concerns about your finances, please feel free to call us – we’re here for you during these challenging times.