Managing Your Money During a Pandemic

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As many of us continue to stay home to do our part to flatten the curve and limit the spread of COVID-19, we are still adjusting to our new “normal”. Virtually every part of our lives has been affected by the pandemic, including the economy. While we cannot control the fact that many stores, restaurants and other businesses are temporarily closed and the market is volatile, we can control our personal finances.  Whether by adjusting spending or being more mindful, there are some simple ways we can manage our money and help us maintain some control over our finances during these uncertain times.  

Remain Objective & Focus on Your Personal Economy

Since the market has been a bit of a roller coaster these past few months, it might be tempting to sell stocks or switch investments.  However, it is important to remember that investments are typically set up for long-term goals and not short-term gains.  If you are feeling very anxious about your current investments or portfolio, it’s important to talk to your financial advisor before making any drastic decisions. Instead of focusing on the overall market and other aspects of the economy we cannot control, it might be more beneficial to focus on your own personal budget and household finances. 

Review Your Emergency Savings Fund

An emergency fund is money set aside to help in the face of unexpected circumstances, such as an accident, loss of income, or a home repair. These savings can assist in both small and large unplanned expenses that come up and are not part of your usual bills and spending.1

Even when not dealing with a global pandemic, it’s a good idea to make sure you have adequate savings or an emergency fund if you don’t already have one. Since we are currently living through a situation that has the capacity to affect every individual’s health or job status, making sure you and your family have enough in case of an emergency is one way to stay proactive and prepared.

Be Aware of Scams

Unfortunately, during a crisis such as this, we also see an increase in scams that capitalize on the fears of the vulnerable. It is important to be aware of the various scams that are prevalent during this pandemic. 

  • Scam #1: Emails Offering Information About COVID-19 

Make sure to keep your eye out for emails that claim to have information about the coronavirus pandemic – especially if they’re offering this information in exchange for personal information. This is an easy way for scammers to lure someone in, since most people are isolated at home and worried about the pandemic. 

  • Scam #2: Suspicious Links

If you receive an email from a friend or business with a link or attachment that is unexpected or out of the norm, consider contacting the sender before opening the link. If the link is from a scammer, the link could download a virus or malware onto your computer or device. 

Key signs of a suspicious email may include:

  1. Poor grammar and misspellings
  2. Lack of specific information (your name, account info, etc.)
  3. The messaging has a sense of urgency
  4. Sender’s address is different than usual
  • Scam #3: Phone Calls & Texts

Even though you may be more inclined to answer all incoming texts or calls during these times, be cautious of what calls and texts you’re responding to. Do not respond to calls or texts from unknown numbers or those coming from suspicious country or area codes. If you do answer the phone and it’s a robocall, do not press any numbers or say anything into the receiver.

According to the Federal Trade Commission (FTC), scammers are using this opportunity to offer fake items over the phone including:

  1. Medicine to cure coronavirus
  2. Work-from-home opportunities
  3. At-home test kits
  4. Vaccinations2   

When it comes to scams relating to the current pandemic, you should treat every “quick fix” opportunity as something that’s too good to be true. As of early April, the FDA has not approved at-home test kits, and a vaccine, cure or preventative drug has not been put on the market.2 Scammers may also try to advertise that they’re selling in-demand items such as cleaning products, toilet paper or masks – be sure to take caution if it’s not from an authorized seller or place of business you’ve frequented prior to this time.

  • Scam #4: Stimulus Checks

With the recent passing of legislation in multiple countries, many people have become eligible to receive financial assistance in the form of checks or rebates and with . With some people eager for their money, they may be less likely to question potential texts, emails or phone calls about government assistance. Remember to use the same caution you would with any other email, phone call or text when it comes to receiving any type of communications regarding government money.  

During this time of heightened fear, anxiety and vulnerability, it’s important to remain wary of any potential scams. Your personal and financial information are always at risk of getting into the wrong hands, so it is extremely important to educate and inform yourself in order to prevent falling victim to any of these dangerous scams.

Review Your Budget

Whether you’re reassessing your current budget or starting fresh, begin by breaking down where your money goes when it comes to housing, food, transportation, health, personal/family, financial and miscellaneous.  Even if your job status has not changed and your income remains steady, you should still review your monthly budget, cutting unnecessary costs and taking advantage of any extra money. The lack of restaurants, bars and stores to visit may mean you now have greater disposable income. If you find yourself with any extra money, you might consider increasing your retirement fund or 529 plan contributions or adding to your emergency savings. You might also decide to donate to those in need, such as food banks or groups supporting hospitals and health facilities, which could all use extra funds during the crisis.

Stay Informed Regarding Available Resources

In response to COVID-19 in the United State, the CARES Act was passed to help families and businesses affected by the pandemic. This bill includes extended unemployment benefits, healthcare aid and one-time stimulus checks for individuals with adjusted gross incomes up to $75,000 (single), $150,000 (joint), or $112,500 (heads of household).3 The tax filing deadline has been extended to July 15. 

As we continue to confront this global emergency, there are many things we can do to stay both physically healthy and financially prepared. To better understand your options and benefits, you should reach out to your workplace or a qualified professional.  If you have any other questions relating to your personal finances or concerns about your financial situation during the COVID-19 crisis, please contact us.  We are here for you and we are all in this together!

  1. https://www.consumerfinance.gov/start-small-save-up/an-essential-guide-to-building-an-emergency-fund/#anchor_what-is-an-emergency-fund
  2. https://www.consumer.ftc.gov/features/coronavirus-scams-what-ftc-doing
  3. https://www.congress.gov/bill/116th-congress/house-bill/748/text

A Recent Survey Finds Americans Less Concerned About Paying Bills Since The Approval Of The Coronavirus Stimulus Plan

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The recent stimulus plan enacted by Congress to help Americans impacted by the coronavirus may be providing a sense of relief to families facing a financial burden during these times.  A recent survey revealed that U.S. adults are somewhat less concerned about their ability to make payments following the passage of the $2.2 trillion economic relief package

Currently, personal health and the health of loved ones are much bigger concerns for most Americans than their financial circumstances.  However, there is still some concern about paying everyday bills, especially amongst Gen Xers (age 40 to 55) and millennials (age 24 to 39).  Baby boomers (those aged 56 to 74) have expressed the most concern about the value of their investments. Read below for more detailed survey information regarding the financial and emotional concerns facing Americans during this time.  

Paying everyday bills

Current level: 5.16/10 (Before the crisis: 5.14)

Average concern about paying everyday bills has almost declined to pre-pandemic levels compared to where it was two weeks prior. Now that a stimulus deal has been reached, anxiety centered on bill payments has dipped among all generations. However, Generation X was the only group of Americans whose concern to pay bills increased significantly since the outbreak began.  For those in lower income brackets that had been concerned about their ability to pay bills before the pandemic, those concerns actually lessened after the passage of the stimulus bill since they will now be receiving extra money to help pay those bills.

The value of investments

Current level: 5.97/10 (Before the crisis: 4.84)

The average level of concern about the value of investments like CDs, stock and retirement accounts has increased from before the start of the outbreak. Baby boomers have the highest concern about the value of their investments since they are the ones either close to retirement or already in retirement and relying on their investments to live. About 1 in 5 (20 percent) of the highest earners are also extremely concerned about what their investments are worth. The positive is that few investors with stock-related holdings have made adjustments in response to their fears. In order to avoid hurting your long-term goal to attain wealth, please make sure you check with your financial advisor before making any changes to your portfolio.

Job and income stability

Current level: 5.88/10 (Before the crisis: 5.35)

Concerns about job and income stability have increased slightly since before the outbreak started. Prior to the pandemic, the least-educated adults were most likely to express being extremely concerned about their job and income situation. However, now a higher amount of post-graduates (mainly millennials and Gen Xers) feel extremely concerned about their job security and income stability compared to the least-educated survey respondents. Members of Generation Z, who were actually most worried about their income and job situation before the coronavirus spread, are now among the least likely to express extreme concern.

Personal health

Current level: 6.51/10 (Before the crisis: 5.93)

For obvious reasons, Americans’ personal health has become a greater concern since the coronavirus outbreak.  However, there are fewer worried about their well-being now that the huge government stimulus package has been approved. Overall, concerns about personal well-being are consistently a bit higher for women than men. 

The health of loved ones

Current level: 7.59/10 (Before the crisis: 6.61)

Across the board, concerns about the health of loved ones trumps concerns about personal health and finances. There seems to be a higher concern for loved ones’ health among minorities, though that gap has narrowed some.  In addition, concern for the health of loved ones is slightly greater for low income families.

Control what you can about your finances

During the current crisis, those with major concerns about health and finance may feel as though little is in their control. But there are still plenty of ways to be proactive about managing money. Try to start by setting a budget and tracking how much money is coming in and what’s going out.  This is especially important if your financial situation has recently changed to some extent. You should be looking for ways to increase your emergency fund, trim expenses and pay off some debt if you are able to. Since most of us aren’t spending money on movies, events and dining out, it might be a good idea to put some of that “discretionary spending” into savings instead. 

It is also extremely important to protect yourself against other potential issues. Make sure you are properly insured (life, health and disability) and comparison shop if you’re spending more than you can afford on premiums. And if you haven’t added beneficiaries to your accounts, now is a good time to consider doing so.  You should also make sure your will and other estate documents have been updated should the need arise.  

At any point, if you are looking for guidance or advice on how to better your financial situation, please contact us.  We are here to help and we are all in this together!

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.

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

 

What To Do If You Can’t Pay For College Next Year

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For many families, the coronavirus pandemic has dramatically changed their financial circumstances. For those with children going to college in the fall, it has created even more of a financial burden and has left many wondering how they are going to pay for it.  Even those that will receive financial aid from the school may still owe more than they can now afford.  

More than 69% of parents and 55% of students entering college in the fall said the coronavirus has impacted their ability to pay for school.  With many non-essential businesses forced to close, not only are parents across the country suddenly facing extended furloughs or lay-offs, but many students have also lost the ability to work to help pay for school. 

If you find yourself in this situation and are unsure of how you will come up with the money to pay for college this coming fall, there are a few things you can do to potentially help with the financial burden.

TRY TO GET MORE FINANCIAL AID

Anyone in financial need should be reaching out to their college or university as soon as possible – time is of the essence.  Since most students filed the FAFSA (Free Application for Federal Student Aid form) in the fall, their circumstances were likely much different back then.  Now families can amend their FAFSA form or ask the college financial aid office for a “professional judgement review.” If there are need-based issues beyond what was noted in the financial aid paperwork, such as increased health-related expenses or the loss of a job, those should be explained to the school and documented, if possible.  Death, illness and income loss are always grounds for revisit the FAFSA. The best way to make a request is to write an appeal letter to the school’s financial aid office.  

APPLY FOR SCHOLARSHIPS

More than 8 in 10 families tap scholarships and grants to help cover costs since money that does not have to be paid back is considered the most desirable kind of assistance — and some of this funding is still available.

Even though it is somewhat late in the game, try to go after private scholarships and grants.  Students should look for local scholarships, particularly from organizations in their community, where the odds of getting an award are better than national competitions. Typically, there are thousands of scholarships offered by schools, employers, individuals, private companies, nonprofits, communities, religious groups, and professional and social organizations.  There are many ways to search for scholarships – you can check with your school’s financial aid office, your high school counseling office, or the U.S. Department of Labor’s  FREE scholarship search tool to name a few.  

RECONSIDER YOUR COLLEGE CHOICES

Due to increased financial concerns, students and families may be more likely to choose local and less-expensive public schools rather than private universities away from home.  After spending the first two years at a community college, you can transfer to a four-year, in-state public university and save a lot of money. At least 30 states have policies that guarantee that students with an associate degree can then transfer to a four-year school as a junior.

These are uncertain times for all of us and the financial burden of paying for college is weighing on many minds during this pandemic.  Even though there is no guarantee you’ll be granted more financial aid or scholarships if you apply, they are two good options if you are trying to figure out how to afford tuition in the fall.  Many schools are also pushing back their decision deadline from May 1 to June 1 to give families a little breathing room to make their choice.

Remember, you are not alone in this and many families are going through the same struggles right now.  If you are a currently enrolled college student and are looking for more detailed information about the impact of Covid-19 on your student loans, the Federal Student Aid website is a great resource.  In addition, if you need any help at all trying to figure out how you are going to pay for college in the fall, or if you have other financial questions, please call us – we are happy to help!

Staying At Home Could Save You Money

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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

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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.

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.

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

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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.

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

retirement

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

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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.