If you’ve taken a financial hit recently due to the Coronavirus crisis, help is on the way.
On March 27th 2020, The Senate passed the largest rescue package in U.S. history. The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a roughly $2 trillion package aimed at providing relief for the American people and economy during the COVID-19 health emergency.
With 335 pages and 183 sections, the CARES Act is far-reaching. It includes provisions specific to individuals, small and large business, hospitals and the public health sector, education, state and local governments and the economy in general.
In this post, we’ll highlight some of the most important ways the CARES Act can help retirees and people in the retirement planning phase.
Tax Rebate Checks
A major chunk of the package—nearly half a trillion dollars—will go to individuals in the form of rebate checks. To relieve the sudden financial pressures facing many Americans, the federal government will make direct payments to individuals and families based on your adjusted gross income (AGI) according to your 2019 tax return (or 2018 if you haven’t filed yet):
- Individuals with AGI up to $75,000 will receive a one-time payment of $1,200
- Married couples with combined AGI up to $150,000 will get $2,400
- You will receive an additional $500 for each qualifying child under age 17
- If your AGI is above the $75,000 threshold ($112,500 for heads of household and $150,000 for joint filers), your payment will be reduced by $50 for every $1,000 in AGI
If you’re a single filer with income exceeding $99,000, head of household filer with one child earning over $146,500 for, or joint filer with no children earning over $198,000, you will not receive a check.
Even if you have no income, or your sole income comes from non-taxable means such as social security benefits, you will receive a stimulus payment. Estates and trusts are not eligible for this rebate. In most cases, you don’t have to take any action to receive your payment.
IRS Tax Filing Extension
To assist with coronavirus relief, the deadline for filing 2019 individual income tax returns has been officially extended to July 15, 2020. Here’s what you need to know:
- This extension applies to tax payments owed for 2019 and estimated tax payments for 2020
- You will not incur late fees if you use the extension
- You don’t need to file extra paperwork; the extension is automatic
Retirement Plan Provisions
Whether you’re already retired or still working on your personal retirement plan, CARES offers some specific relief benefits. Highlights include:
IRA Contributions - Along with the tax filing extension, the deadline for making contributions to your IRA for 2019 has also been extended to July 15, 2020.
Early Withdrawals from IRAs, 401(k)s - If you or your spouse has been diagnosed with COVID-19 (or you’ve been adversely impacted in any way) the 10% early withdrawal penalty will be waived for up to $100,000. The distribution will be counted as income (which means you still have to pay taxes on it) over three years. This provision for penalty-free early withdrawals does not apply to pension plans.
Required Minimum Distributions - Retirees can delay required minimum distributions (RMDs) for retirees for 2020.
Expansion of Unemployment Benefits
The coronavirus relief bill greatly expands unemployment compensation benefits by:
- Covering the first week of unemployment immediately
- Increasing benefits up to an extra $600 per week on top of what you qualify to receive from your state of residence
- Extending the benefit period up to an extra four months
- For the first time ever, self-employed individuals and independent contractors can also receive unemployment benefits for up to 39 weeks.
If you have the ability to work from home with pay, or are receiving paid sick leave or other paid leave benefits, you’re not eligible for unemployment benefits.
Provisions Related to Individual Healthcare
The CARES act is filled with health-related provisions—unsurprising given that coronavirus may be the most significant health-related event many Americans have ever witnessed. Here’s a summary of the provisions most relevant to retirees or those planning for retirement.
Medicare Recipients - Medicare beneficiaries are eligible to receive the COVID-19 vaccine (when available) at no cost. During the emergency period, Medicare Part D recipients can also request up to a 90-day supply of prescribed medications, and Medicare Rules for providing Telehealth services will be temporarily relaxed.
Medical Expense Accounts- CARES expands the definition of qualified medical expenses for tax-favored accounts to include Over-The-Counter expenses. These tax-favored accounts include:
- Health Savings Accounts (HSAs)
- Archer Medical Savings Accounts (MSAs), and
- Healthcare Flexible Spending Accounts (FSAs)
Telehealth services may be temporarily covered in 2020 by an HSA-eligible high deductible health plan before a participant has met their deductible.
If you’re experiencing financial hardship due to the coronavirus pandemic, you can request forbearance for up to 180 days on your federally-backed mortgage (Fannie Mae, Freddie Mac, FHA or USDA loans).
- You won’t incur any fees, penalties or added interest during this period
- You don’t have to prove the condition of your finances, but you must attest to it
- You may request an additional 180 days of mortgage relief if needed
- Simply contact your loan servicer to have your federally-backed mortgage payments postponed.
If your mortgage is held by a private lender, you should still contact them to ask about mortgage relief. Many banks are working with borrowers to suspend payments or offer special terms. Also, check to see if your state has made any special provisions related to mortgages during this time.
More Ways the Coronavirus Relief Package Offers Help
- Expanded tax deductions for charitable giving
- CARES automatically defers Federal student loan repayments (and interest accrued) through Sept 30, 2020
- Paycheck Protection Program loans for small business owners with less than 500 employees (with the possibility of loan forgiveness)
- $150 billion is allocated for various initiatives to support hospitals health care providers
Tips for Managing Your Retirement Plan During the Coronavirus Crisis
The COVID-19 pandemic and the resulting economic shake-up bring a feeling of uncertainty that can rattle anyone. It can feel even more intense when you’re heading into a new phase of your life like retirement. Our advice is to focus on what you can control:
- Make sure you have a solid financial plan that’s designed for the long-term
- Educate yourself on the importance of a fee-only (fiduciary) financial advisor
- Keep a cool head and focus on the big picture
These are tumultuous times, indeed, but you don’t have to go it alone. If you have any questions at all about what these provisions mean for your finances or your personal retirement plan, just ask. As Certified Financial Planners™ (CFP), we’re here to help you manage your finances—now, and in the future.