The Federal government is sending out money to many Americans, loosening restrictive access to retirement monies, and a host of other options to get cash into the pockets of those hardest hit by the public health emergency created by the coronavirus.
If you are struggling with the fallout of coronavirus you may soon be able to tap into your retirement savings to cover bills, loan payments and everyday expenses. But while it’s tempting to cash in, you should exhaust every other option first.
The bill passed on Wednesday, March 25, 2020 also allows people to take a withdrawal of up to $100,000 from their retirement savings, including 401(k)s or individual retirement accounts, without the typical penalty.
In the past, if you need to access those funds before age 59½, you generally have to pay a 10% penalty on any amount you take. The general exceptions to that rule include education expenses, buying your first home, covering massive medical debts or being ordered by a court to provide alimony or child support. If you’re over age 55 and you’ve lost your job, whether you were laid off, fired, or quit, you can also pull money out of your 401(k) or 403(b) plan from your current employer without penalty.
While it’s possible some details could change before the House passes the bill, here’s what I know about the stimulus checks now:
How much are the checks worth?
Individuals earning a gross adjusted income up to $75,000 a year will be eligible to receive a $1,200 check. From there, the checks will be reduced by $5 for every $100 in income north of $75,000. They phase out completely if you earn $99,000 or more.
Married couples earning a gross adjusted income up to $150,000 will receive $2,400. Checks phase out completely at $198,000 for couples. Heads of household will receive $1,200 if they earn up to $112,500, phasing out completely at $136,500 (check out this calculator). Additionally, heads of households and married couples will receive $500 per child under 16.
Who qualifies?
You need a Social Security number to qualify for a relief check. As noted above, individuals earning up to $99,000, and couples earning up to $198,000, will receive a check, though the amount will vary.
You do not need taxable income to receive a check. However, if you don’t typically file a tax return, you will need to do so for 2019 before you will be eligible.and Senate strike deal on historic $2 trillion coronavirus stimulus bill
Will retirees get a stimulus check?
Yes, many people receiving Social Security benefits will be eligible for a check, as long as their gross adjusted income meets the requirements.
Will gig workers get a stimulus check?
Yes. As long as you have a Social Security number, filed taxes in 2018 or 2019 and meet the income requirements you will receive a check.
Will you still get a stimulus check if you recently lost your job?
Yes. If you filed taxes in 2018 or 2019 and meet the income requirements you will receive a check. However, if you recently lost your job because of the coronavirus but your income was over the eligibility requirements in 2019, then you will not receive the check. But you can still apply for unemployment.
What is adjusted gross income?
Adjusted gross income is different from taxable income. It is the amount of money you report as income, including earnings from your job, self-employment, dividends, etc., minus certain “above the line” deductions like alimony payments and contributions to certain retirement accounts, including a 401(k) and IRA.
You can find your AGI on line 8b on your 2019 Form 1040 and line 7 on your 2018 Form 1040.
What tax year is your gross adjusted income based on?
If you’ve filed your 2019 return, then the amount you receive will be based on your 2019 gross adjusted income. Otherwise, the federal government will use your 2018 return to see if you are eligible.
How will the checks be sent?
The checks will be sent via direct deposit if you’ve already provided the IRS with your bank account information. If you received a refund this year deposited directly into your account, you’re all set.
If the IRS doesn’t have your direct deposit info, you will get a check in the mail.
Do you need to apply for the checks?
No. The checks will be sent automatically by the IRS. However, if you have not filed a 2018 or 2019 tax return, you should do so.
When will the stimulus checks go out?
People will start receiving relief checks, or direct deposits, within three weeks, according to Treasury Secretary Steve Mnuchin. Some experts, though, say that is unrealistic and that it could take much longer.
Those who do not have direct deposit information on file with the IRS can expect to wait longer to receive a check in the mail, just as they would have to wait to receive their tax refund.
Are the checks taxed?
The checks are not taxable.
What’s the best way to use the money?
Many people receiving the checks will use them for day-to-day expenses: groceries, bills and rent or mortgage payments.
If you don’t need them for those purposes, experts advise using them to build an emergency fund or pay down some debt. If you already have an emergency fund, and little to no debt, you could consider investing the money.
Will more checks be sent?
President Trump has said he is open to sending another round of checks, however it is unclear whether Congress will do so in the coming months.
Anything else to worry about?
Unsurprisingly, scammers are already looking for ways to cash in on unsuspecting victims. The Federal Trade Commission recently warned consumers that the government will never ask you to pay money upfront to receive the checks, or call you to ask for personal information like your Social Security number of bank account number, all of which are typically scams.
You will either receive a direct deposit, or a check in the mail. The government will not send you the payment via Venmo or another app. Direct deposits are more secure than paper checks, so if you are relying on the latter, be vigilant about checking your mailbox.
Ronald Lieberman, Esq. is a partner and shareholder with ALBFR&M based in Southern New Jersey. Finances are a big part of divorce with retirement assets often a significant issue to be negotiated. Ron represents clients throughout New Jersey helping them deal with these sensitive financial issues.
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