3 Ways The COVID-19 Stimulus Law Can Help Your Financial Woes


Normally, it is not wise to dip into your retirement savings for purposes other than retirement. But the coronavirus pandemic has made these times anything but normal, and you might be desperate for money. So you’ll want to know more about the pension plan provisions buried in the new $ 2 trillion stimulus law – the CARES law – that could get you out of a bind.

Two of them allow you to withdraw or take out a loan more easily and at a lower cost on your retirement plan. One of them allows people aged 70 and a half or over not to take what would otherwise have been required from the minimum distributions (RMD) of their pension plans. And one gives you more time to contribute to an Individual Retirement Account 2019 (IRA).

You may be eligible for a penalty-free withdrawal from the pension plan if you live or work in a federally declared COVID-19 disaster area.

Here’s a guide on how a few provisions of the CARES (Coronavirus Aid, Relief, and Economic Security) law can help your finances at a time when you can use a helping hand:

Withdrawals and loans in case of difficulties related to the pension plan

Normally, if you withdrew money from an employer sponsored retirement plan or IRA before 59½, you would be hit with taxes and a 10% penalty tax on that amount. But the CARES Act waives the early distribution penalty on up to $ 100,000 of those distributions in 2020 for what the law calls “affected persons”. And you will be allowed to pay taxes owed on the distribution over three years.

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To be eligible for these rules, you must either have been diagnosed with COVID-19, have a spouse or dependent diagnosed with it, or have suffered adverse financial consequences as a result of quarantine, discharge , layoff, reduction of working hours, incapacity for work due to lack of child care due to COVID-19, closure or reduction of hours of opening a business that you owned or operated if you had COVID-19 or “other factors as determined by the Secretary of the Treasury”.

Additionally, you may be eligible for a penalty-free withdrawal from the pension plan if you live or work in a federally declared COVID-19 disaster area. FEMA (the Federal Emergency Management Agency) has already declared many states as disaster areas due to the COVID-19 pandemic.

(Read all Next Avenue COVID-19 coverage aimed at keeping older generations informed, safe and prepared.)

The CARES Act also increases the amount you can borrow against your 401 (k) pension plan within six months of the law being enacted to $ 100,000 or 100% of the account balance, whichever is less. Previously, the limit was $ 50,000 or 50% of the balance, whichever is less.

In addition, loan repayments due before December 31, 2020 can be suspended for one year.

Waiver of minimum required distributions

Before the CARES Act, if you were over a certain age and had a retirement plan account, you had to withdraw at least a specified amount each year known as the minimum required distribution. The RMD age trigger had been 70 ½; The SECURE law of 2019 pushed it to 72.

But the CARES law lifted the RMD requirement in 2020 for people aged 72 and over. And that waiver even applies to IRA owners who turned 70 and a half in 2019, as they would normally have had to start taking RMD by April 1, 2020, according to an article by pension advisor Ed Slott on Financialplanning. com.

The new law also says that if you don’t take your RMD in 2020, you will not be subject to the 50% penalty tax normally levied by the Internal Revenue Service.

Skipping the RMD will allow you to keep your retirement funds where they are, tax-sheltered and avoid selling investment stocks at the wrong time. Plus, avoiding that withdrawal could lower your tax bill, as the money you would have withdrawn could have pushed you into a higher tax bracket, notes Jamie Cox, managing partner at Harris Financial Group in Chesterfield, Virginia.

Waiving the RMD could be particularly useful for some retirees. In a new MagnifyMoney survey, 59% of investors said they lost money on their investments during the pandemic.

Just because the new law makes it easier to withdraw a large chunk of your money from a pension plan doesn’t mean you should, especially shortly after a sharp drop in the stock market.

As Sri Reddy, Senior Vice President of Retirement & Income Solutions at Principal Financial Group

wrote in a recent comment: “Unless you are in dire straits, withdrawing a large amount after the market has fallen 30% is not a good option and should be avoided. Instead, consider this time to be a good time to review your other daily spending at appropriate spending levels and stay invested.

More time to fund an IRA 2019

The CARES Act has also given taxpayers more time to invest in an IRA for 2019, if you can afford it.

Usually, you have to make your IRA contributions by April 15th of the year following the year of the tax return. But when the US Treasury pushed back the 2020 tax filing date to July 15 due to the coronavirus, it also extended your last chance to make 2019 IRA and Roth IRA contributions to that date.


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