Last Week’s Question of the Week: What amount of non-mortgage debt do retirees (between the ages of 65-70) carry on average?
ANSWER: More than $20,000 in non-mortgage debt.
HOST: Your topic today is very timely. Just recently Congress passed the CARES Act for Americans and you are going to review with our listeners some of the more pertinent details.
KLAAS FINANCIAL: Yes, on March 27, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act, now known as the “CARES Act”. The passing of this historic bill offers a fiscal stimulus package with a $2+ Trillion price tag and has several components to help confront the economic damages created by the virus. The act provides funds for public health spending to confront the COVID-19 pandemic; immediate cash relief for private citizens in terms of “recovery rebates”; lending programs for small businesses and some targeted relief for the hardest hit industries. The Act is almost 900 pages in length, so we obviously can’t cover every detail today, but want to point out some of the most important financial items that our listeners should be aware of.
Recovery Rebates. These will come in the forms of checks to qualifying Americans. Not likely to come out for another 2-3 weeks.
a) $1200 pp ($2400 for MFJ) and $500 per child.
b) Phase outs begin at 75k for Singles (99k 100% phased out), 150k for MFJ (198k 100% phased out), $112,500 for HOH (benefit reduced by $50 for every $1000 of income over threshold).
c) The rebates are based on your MOST recent filing; if you haven’t filed 2019 taxes YET, they will be based on your 2018 figures; otherwise they will be based on 2019 figures. No claw back of excess payment.
d) These checks will not be taxable; and will not affect your MAGI.
e) How will the IRS know where to send my payment? Most people do not need to take any action. The IRS will calculate and automatically send the economic impact payment to those eligible. In the coming weeks, Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online, so that individuals can receive payments immediately as opposed to checks in the mail.
Coronavirus-Related Distributions. This Act is providing the ability for individuals who have been directly impacted by the COVID-19 virus to take distributions from their IRAs or 401ks without a penalty. Being directly impacted is qualified as having been diagnosed or have a spouse or dependent diagnosed with the virus; has experienced financial consequences as a result; unable to work due to childcare issues; own a business that has closed or operate under reduced hours.
a) Allows up to 100k distribution from IRA/401ks or other employer sponsored plans.
b) Exempt from 10% of early withdrawal penalty (pre 59 ½)
c) Not subject to mandatory w/h requirements (20% usually from 401ks)
d) Can repay back over 3 years (with amended tax returns when you make contributions to payback distributions)
e) Remember that this pre-tax income is still taxable! Income however can be spread out over 3 years of tax returns (2020, 2021, 2022)
Regular Unemployment Compensation has been increased by $600 per week, and the benefit period has been extended by 13 weeks.
HOST: Another area of changes includes RMDs? What should we know about that?
KLAAS FINANCIAL: Last month we discussed the SECURE ACT which changed the age of when Americans need to begin pulling Required Minimum Distributions from their pre-tax accounts (IRAs, 401ks etc). The age was moved from 70.5 to 72 beginning in 2020. Now with the CARES ACT in place, all RMD’s in 2020 have been TEMPORARILY waived, and taxpayers who have already taken their RMDS have the option of returning them if they so desire. This is a big deal.
What does this mean for you?
- Perhaps nothing… if you are currently using your RMD’s for regular income.
- Perhaps something… if you don’t currently need the RMD’s for income. Being able to defer them for all of 2020 will reduce your taxable income.
If you have already taken your RMDs for 2020, you have the option of returning them via a 60-day rollover; otherwise proving being impacted by COVID 19 would give you 3 years to re-deposit this money.
If you are a beneficiary that has already taken RMD’s for this year from an inherited IRA, you do not have a rollover option period.
Speak to your financial advisor or your accountant to discuss if you should be halting them for 2020.
Some other items to note with regards to the Act:
- Student Loan payments have been deferred until September 30, 2020 and no interest will accrue during that time.
- Small Business loans are being offered. Certain small business can qualify for small business loans that have a maximum interest rate of 4% and may be eligible for full or partial forgiveness. There are some caveats to the loans that you will want to understand before you consider taking them out.
- Payroll tax credit may be available for qualifying businesses NOT receiving a loan.
- Payroll taxes can be deferred by employers till the end of the year of 2020, 2021, and 2022.
HOST: From the Money in Motion Listener Corner, Jeremy wrote in the following question: “I know that the IRS has extended the tax deadline until July 15, but if I still want to make an IRA contribution, has this been extended as well?”
KLAAS FINANCIAL: Thanks for the question Jeremy. This has been a pretty popular question recently. There are two things to know. 1) The tax deadline has been extended just as you said, from April 15 to July 15, 2020. And you can wait to add any final IRA contributions till the July 15th deadline as well. Obviously, payroll deductions that went into your 401k had to be done by December 31st of last year. 2) Taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax.
Taxpayers do not need to file any additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief.
This Week’s Question of the Week: As a result of recent events with COVID-19, when must you have filed your 2019 taxes? Is it April 15 or July 15?
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.