The massive $2.2 trillion stimulus package was passed by the U.S. House of Representatives on Friday, and while it will provide benefits for businesses and individuals alike, the stimulus bill also impacts retirement.
The package known as the Coronavirus Aid, Relief and Economic Security Act contains provisions that will help families and businesses alike, including direct payments to individuals, unemployment aid and small business loans and grants.
The CARES Act also should be helpful to retirees and anyone who maintains a retirement account in a few different ways as well. Let’s take a look at how the stimulus bill impacts retirement.
How the Coronavirus Stimulus Bill Impacts Retirement
Social Security
One great thing about the coronavirus stimulus bill is that anyone who is enrolled in Social Security is eligible to receive the $1,200 direct payment the government is sending out as long as they meet the other income requirements.
Anyone with an adjusted gross income of $75,000 ($150,000 for joint filers) on their 2018 or ’19 tax return is eligible for the full $1,200 payout. That amount shrinks incrementally based on incomes above $75,000 to a cap of $99,000. Anyone making more than $99,000 is ineligible for this payment.
Beneficiaries of Supplemental Security Income from Social Security will also receive the relief money.
The payments are structured as income tax rebates — like a refund of taxes that you paid, so they will not be taxable, according to Reuters.
This is a nice little way the coronavirus stimulus bill impacts retirement because so many seniors rely on Social Security for a reasonable chunk of their monthly income, but the average check is only about $1,500 per person in 2020, according to the Social Security Administration.
Required Minimum Distributions
The CARES Act suspends required minimum distributions from tax-deferred accounts for the year of 2020.
Normally, any retirees or someone who has inherited an IRA would have to start taking RMDs at either age 70 1/2 (for those born before July 1, 1949) or 72 (for those born after June 30, 1949). Anyone in that situation has to draw down a certain percentage from an account and pay income taxes on whatever was withdrawn. Failing to do so means a 50% penalty against what was supposed to be taken out.
RMDs this year are based on the value of your holdings as of Dec. 31 last year — when the stock markets were much higher.
“If this hadn’t been waived, you’d be taking out a larger share from your IRA and paying tax on value that no longer exists,” Slott said. “It’s a good provision, but it’s not as helpful as you might think — the government’s own data indicates that 80% of people subject to RMDs take more than the minimum anyway, because they need the money. So I guess this will help people who don’t need the help.”
401(k) Relief Plan
The bill permits people affected by the virus or related economic circumstances to make withdrawals from workplace plans and IRAs up to $100,000 this year without the usual 10% penalty due for people under age 59-1/2.
Income taxes are still due on the withdrawn amounts, but the law allows you to spread out this liability over three years. You also have the option to redeposit the withdrawn sums during that period.
This may not affect as many people, because it’s likely that the people who are hurting the most economically from the coronavirus either don’t have a 401(k), or don’t have over $100,000 in it.
“It’s more likely to serve as a tax-planning tool for wealthy individuals than a lifeline for the middle class,” Shai Akabas, director of economic policy for the Bipartisan Policy Center, told Reuters.
The CARES Act is mostly meant to help out those who are struggling to make ends meet after a sudden job loss or loss of business. But the stimulus bill impacts retirement as well.
Reuters contributed to this report.
