Here are Some Ways the Stimulus Package May Change Your Retirement Planning

The $2 trillion economic relief plan impacts almost every layer of American life, including your retirement plan.

Here are some important components all workers currently saving for retirement and retirees need to know.

Required Minimum Distributions are suspended for 2020 for IRA’s and workplace plans.

The formulas for these distributions were calculated on 12/31 when the market was much higher than it is currently, so investors would have been forced to sell stocks that had substantially depreciated. RMD’s are typically mandatory, but not in 2020.  The suspension gives additional time for the market to potentially recover.

The new rule even enables those over the age of 72 who are more fortunate and have significant outside assets to avoid their forced distributions as well.

At this moment, it’s unclear if inherited/beneficiary IRA RMDS are suspended since the IRS has yet to give definitive guidance on this issue.

Up to $100,000 will be allowed to be withdrawn penalty-free from workplace or I.R.A. accounts

The package eliminates the 10% penalty for individuals under 59 1/2. Regular income taxes still need to be paid on withdrawals but can be spread out over three years from the date of the original withdrawal.

Another benefit is that you can reimburse your withdrawals before the three years are up. This amount is far above the standard contribution rates. Usually, it’s a bad idea to prematurely withdraw funds from a retirement account, but if a matter of survival, this may serve as a lifesaver for many people as a bridge loan until the economy rebounds.

This carve-out only applies to coronavirus-related withdrawals. According to the New York Times:

You qualify if you tested positive, a spouse or dependent did or you experienced a variety of other negative economic consequences related to the pandemic. Employers can allow workers to self-certify that they are qualified to pull money from a workplace retirement account.

Borrowing limits have been increased for workplace plans

The limit has been increased from $50,000 to $100,000 for 180 days after the bill passes. In order to take this loan, you’ll need to prove that your life has been affected by the Coronavirus. In addition, if you already have a current balance and were obligated to pay it back by 12/31 you’ll get an additional year, but you can’t borrow from your IRA.

Source: Financial Planning

The stimulus package created many new possibilities for leveraging retirement accounts – especially for families desperate for funds to keep a small business alive or cover loss of employment.  For those that might be ok financially, this package offers additional tax planning strategies.  If you have any questions relating to your retirement funds or other financial questions during these challenging times, please give us a call.

 

Information on Your Student Loans During the COVID-19 Crisis

The recent stimulus package recently passed by  Congress gives most federal student loan borrowers a six-month break from payments. It comes after a series of announcements by the U.S. Department of Education meant to alleviate student loan stress. The new law takes that relief even further.  The biggest break is that you can stop making payments on most federal student loans for six months — from April through September — and no new interest will accrue. That means, at the end of those six months, you’ll owe exactly what you did at the start.  Congress didn’t wipe out any of your student debt, but it gave everyone a six-month payment holiday, regardless of how much they have or haven’t been hurt by the current wave of layoffs and closings designed to limit the spread of the coronavirus.  In addition, the stimulus package expands on and supersedes earlier relief programs Specifically, here’s how the new stimulus affects your student loans, and what to do if you’re in each of the situations below.

1. If You’re Current But Likely To Fall Behind

Even if you are able to pay your bill currently, but you’re concerned about losing income or affording payments in the next few months, you should take advantage of automatic student loan forbearance starting now.  Use it to build an emergency fund so that you can put it toward other essentials like food and housing in the future if necessary.

2. If You’re Working Toward Public Service Loan Forgiveness

The stimulus bill updates certain details regarding Public Service Loan Forgiveness. If you don’t make payments until Sept. 30, those months will still count toward your Public Service Loan Forgiveness timeline. That means you won’t have to make payments for extra months, past the time you planned to get forgiveness so even if you can keep paying loans, it doesn’t make sense to do so. If and when you do qualify for PSLF, you’ll receive forgiveness on the outstanding balance without needing to pay income tax on the amount forgiven.

3. If You’re Current On Student Loan Payments And Your Income Is Secure

You don’t have to make payments right now, but since new interest won’t accrue, any payments you do make will be turbocharged. More of your payment will go toward your principal balance, helping you pay off the loan faster. If you’re not concerned about your income or shoring up savings at the moment, your best bet is to continue making payments while you can.

4. If You’re Behind On Student Loan Payments

Borrowers who were more than 31 days behind on their loans receive automatic forbearance and now your payments are automatically postponed until Sept. 30. You don’t need to ask for forbearance from your student loan servicer, but it’s a smart idea to check your online account soon to make sure they’ve updated their records. Interest won’t accrue during this period. 

The U.S. Department of Education has also announced that:

  • Collections activities will be paused, meaning you shouldn’t receive calls or letters about a federal loan in default that a private company is now collecting on.
  • The government will not withhold your pay, your tax refund or your Social Security payment — known as Treasury offsets — for at least 60 days if you’re in default, starting from March 13. 
  • If you’re in a rehabilitation program to get out of default, which requires you to make nine on-time student loan payments in 10 months, the clock doesn’t stop on your payment arrangement. Even if you don’t make payments for the next six months, those months will still be counted toward your rehabilitation timeline.

If you’re worried you’ll need help after the pause on payments has ended, you can sign up for an income-driven repayment plan to limit your monthly bill to a percentage of your income for as long as you need to. You’ll also get forgiveness after 20 or 25 years of payments, and you’ll pay income tax on the forgiven balance. 

5. If You’re A Parent With Student Loans On Behalf Of A Child

If you took out federal direct PLUS loans to help your child pay for college, these are included as part of the stimulus package’s relief offerings. That means your payments will be suspended automatically until Sept. 30. 

If you can continue to make payments, you’ll benefit from the fact that new interest isn’t being charged during this six month period. That means all payments you make during this period go directly toward your principal balance, potentially helping you pay off your loan quicker. 

6. If You Have Commercially-Held FFEL Or School-Held Perkins Loans

Only loans held by the U.S. Department of Education qualify for relief in the stimulus package, including the interest waiver and payment suspension. Loans from the Federal Family Education Loan (FFEL) program that are owned by private entities, and Perkins loans owned by colleges, don’t qualify. 

However, you can consolidate these loans into a direct consolidation loan in order to access stimulus benefits. Consolidating also lets you take advantage of income-driven repayment if you need it in the future. But if you have Perkins loans, that means giving up access to certain forgiveness programs for public service workers and other benefits. Weigh the pros and cons before consolidating.

7. If You Have Private Student Loans

The federal relief programs DO NOT apply to borrowers with private student loans. That means it’s up to you to call your lender and ask about loan modification programs, which many offer. 

If you’re at risk of falling behind on loan payments, request help from your lender as soon as possible. You can ask about options for reducing or pausing payments and waiving late fees. 

8. If You Don’t Know Where To Start

It is most important to know what type of student loans you have so you know whether you can confidently stop making payments or not. Most student loans are federally held, so if you’re unsure, start by signing in to StudentAid.gov with your Federal Student Aid ID, or create an account. 

If you know you have student loans but they’re not listed there, the loans may be private. All your loans will be listed on your credit report, so if not listed on StudentAid.gov, they are likely private. You can check your credit report for free once a year from each of the three main credit bureaus at AnnualCreditReport.com.

As always, if you have any questions relating to your student loans or any other aspects of your current financial situation, feel free to set up a call.

 

 

The $2 Trillion Economic Stimulus Bill Has Passed: Here is an Overview

On March 27, 2020, the White House and Congress came to an agreement and passed the largest relief package in recent United States history, called the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Spreading $2 trillion amongst businesses, hospitals, families and individuals, this economic stimulus package is designed to bring relief to those experiencing the ever-increasing threat of economic turmoil and downturn amidst the COVID-19 pandemic.

After six days of back and forth between Senate Republicans, Democrats and the White House, all parties came to an agreement on this historical $2 trillion package. For perspective, this relief package greatly surpasses the $168 billion offered to Americans in the Economic Stimulus Act of 2008, which was the last time an economic stimulus package was passed.1 

If you’re wondering how this newly passed act may affect you, your place of employment or your local healthcare facility, we’ve gathered up the important numbers to know in this overview.

Unemployment Benefits

In an effort to extend unemployment benefits, eligible Americans on unemployment will receive an additional $600 per week for four months.2 This is done in an effort to help those who are currently out of work due to the COVID-19 pandemic better achieve their full pay over the next four months.

This bill will allow unemployed individuals affected by the pandemic to receive unemployment insurance for an extended 13 weeks. In addition, it will allow out-of-work individuals to receive the enhanced unemployment benefits as outlined in this bill for four months.2

The bill has called for the creation of a pandemic unemployment assistant program that would offer unemployment benefits to those who have previously not been eligible – including those who have been furloughed by their employer, freelancers and gig workers (such as Uber or Lyft drivers).

Healthcare Aid

In the final iteration of the bill, hospitals will receive around $117 billion in aid.2 In regards to helping healthcare workers on the frontline of the COVID-19 pandemic, the bill is meant to help workers gain better access to protective equipment, testing supplies and provide construction or facilities to house the growing number of patients in need.

Additionally, hospitals and healthcare providers will see a 20 percent increase in Medicare payments for treating those on Medicare with coronavirus.2

Stimulus Checks

Some American taxpayers will be receiving direct stimulus payments of $1,200 as part of the new bill. Those with incomes up to $75,000 will receive the full $1,200, with the amount lowering and eventually phasing out for those who earn more than $99,000. Individuals earning $99,000 or couples earning $198,000 or more will not receive checks. Families who qualify with children can expect to receive an additional $500 in direct payments per child.2

To determine how much you will receive, the government will be basing your income level on your 2018 tax return, unless you have already filed your 2019 tax return.2 As a reminder, the tax filing deadline has been extended to July 15, 2020.2

Small Business Grants & Loans

A large portion of this stimulus bill will be going toward assisting small businesses who have been affected greatly by the COVID-19 pandemic. Overall, $500 billion will go toward assisting businesses and corporations, with $29 billion going to the aviation industry and $17 billion to businesses that work in national security. The remaining $454 billion can be leveraged as loans for other businesses or municipalities. Companies that choose to take this government assistance must agree to stop any stock buybacks for the length of the loan plus a year. In addition, these companies must retain at least 90 percent of their employee levels between March 24 and September 30, 2020.2

This money will be overseen by an inspector general and a five-person panel, who Congress will appoint. In addition, any businesses run or partially run (at least 20 percent stake in the company) by the Trump family, or other senior government officials, will not be eligible to use these funds.2

Education

Millions of educators and students from K-12 through college have been affected by government orders to self-isolate. In an effort to assist school systems and institutions across the country, the government is granting $30 billion in emergency education funding.2

In addition, The Department of Education will be suspending payments so that borrowers would be allowed to put off paying their federal student loan payments without penalty until September 30th.2

Airlines

Airlines have been hit hard during the pandemic and requested government assistance to help negate the crippling effects they’ve endured as a result. The relief bill will provide $32 billion in the form of grants to cover the wages and benefits of aviation employees.2

Here’s how the $32 billion will be broken down within the aviation industry:

  • $25 billion for passenger airlines
  • $4 billion for cargo airlines
  • $3 billion for contractors (workers who handle ticketing, cleaning, catering, baggage, etc.)2

Passenger airlines and cargo airlines will also receive additional help, $25 billion and $4 billion respectively, via loans or loan guarantees.2

In exchange for this assistance, the government has banned airlines receiving assistance from furloughing employees, making pay cuts, buying back stocks or issuing dividends to investors through September.2

Local Government

State and local governments haven’t been immune to the financial hardships this global pandemic has caused. The stimulus package is offering $150 billion for state and local governments that have been working to combat the effects of COVID-19 in their communities.2

Food Assistance Programs

Anticipating a rise in demand for food banks as a result of the increasing unemployment rate, the bill has provided the Emergency Food Assistance Program with $450 million. Approximately $350 million would go toward purchasing food, with the remaining $100 million spent on the distribution of food to those in need. In addition, Puerto Rico and other U.S. territories will receive $200 million for food assistance, and American Indian reservations will receive $100 million for food distribution.2

While the news seems to be changing every day surrounding COVID-19 in America, this stimulus act is coming at a time when families and business owners alike are fearful of their financial future. If you still have questions about how this stimulus package may affect you or your business, please click here to schedule a call.  Together, we can sort through expectations of what’s to come and the right next steps to take.

  1. https://www.congress.gov/bill/110th-congress/house-bill/5140/text
  2. https://www.congress.gov/bill/116th-congress/senate-bill/3548/text