As we go through the coronavirus crisis, we are all, first and foremost, concerned about the health of our loved ones and communities. But the economic implications of the virus have also weighed heavily on our minds. However, if you’re an investor or a business owner, you may benefit from COVID-19 relief legislation (“Legislation”) out of Washington – and it could make a big difference, at least in the short term, for your financial future. Expanded unemployment benefits – The Legislation provides $250 billion for extended unemployment insurance, expands eligibility and provides workers with an additional $600 per week until July 31, 2020, in addition to what state programs pay. The package also covers the self-employed, independent contractors and “gig economy” workers. Obviously, if your employment has been affected, these benefits can be a lifeline.
Furthermore, the benefits could help you avoid liquidating some long-term investments you’ve earmarked for retirement just to meet your daily cash flow needs.
Direct payments – You may already have received, or soon will receive, a one-time direct payment from the government. Individuals will receive up to $1,200; this amount is reduced for incomes over $75,000 and eliminated altogether at $99,000. Joint filers will receive up to $2,400, which will be reduced for incomes over $150,000 and eliminated at $198,000 for joint filers with no children. Plus, taxpayers with children will receive an extra $500 for each dependent child under the age of 17. If you don’t need this money for an immediate need, you might consider putting it into a low-risk, liquid account as part of an emergency fund.
No penalty on early withdrawals – Typically, you’d have to pay a 10% penalty on early withdrawals from IRAs, 401(k)s and similar retirement accounts. Under the Legislation, this penalty will be waived for individuals who qualify for COVID-19 relief and/or in plans that allow COVID-19 distributions. Withdrawals from traditional retirement accounts will still be taxable, but the taxes can be spread out over three years. Still, you might want to avoid taking early withdrawals, as you’ll want to keep your retirement accounts intact as long as possible.
Suspension of required withdrawals – Once you turn 72, you’ll be required to take withdrawals from your traditional IRA and 401(k). The Legislation waives these required minimum distributions for 2020. If you’re in this age group, but you don’t need the money, you can let your retirement accounts continue growing on a tax-deferred basis.
Increase of retirement plan loan limit – Retirement plan investors who qualify for COVID-19 relief can now borrow up to the lesser of $100,000 or the vested balance from their accounts, up from $50,000 or 50% of the vested balance, provided their plan allows loans. We recommend that you explore other options, such as the direct payments, to bridge the gap on current expenses and if you choose to take a plan loan work with your financial adviser to develop strategies to pay back these funds over time to reduce any long-term impact to your retirement goals.
Small-business loans – Included in the Legislation is the Paycheck Protection Program (PPP), which initially provided $349 billion in federally guaranteed loans to help small businesses – those with 500 or fewer employees – retain workers and avoid closing up shop. The first allocation of funds was quickly depleted; however, Congress authorized an additional $310 billion for the PPP. These loans may be forgiven if borrowers use the loans for payroll and other essential business expenses (such as mortgage interest, rent and utilities) and maintain their payroll during the crisis. We’ll be in a challenging economic environment for some time, but the Legislation should give us a positive jolt – and brighten our outlook.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor. Edward Jones. Member SIPC.