What you need to know about mortgage forbearance and the eviction moratorium
June 11, 2021
Last updated: June 30, 2021
On March 27, 2020, the CARES Act was signed into law putting into place a forbearance on federally backed mortgages through the end of the year. Later in 2020, the Centers for Disease Control (CDC) issued an order to stop renters’ evictions, also through the end of the year. Both have since been extended, but only until July 31, 2021, and even though they prevent evictions and foreclosures, neither relieves the obligation for payment. Consequently, there is an estimated 13 million renters and homeowners who face the possibility of being removed from their current residence. If you are one of them, here is what you need to know:
If You Rent
According to the Census Bureau, 6 million renters are still behind on their rent payments. The Consolidated Appropriations Act of 2021 and the American Rescue Plan Act provide federal funds directly to states and municipalities to help tenants with back rent, utilities, and other housing related expenses, but the process is slow and may not be in place for all tenants in time to help by the July 31st deadline.
If you don’t take action now, starting August 1st landlords will be able to evict those who are behind on rent and sue for the money owed, even if the non-payment is for COVID related reasons. Several states have their own restriction on these evictions and offer programs to help, but unless your state is one of them, you may still be at risk.
If You Have a Mortgage
The Census Bureau estimates that nearly 7 million homeowners are still behind on their mortgage. Borrowers have until July 31st to apply for forbearance on a federally backed home loan, although loans with Fannie Mae or Freddie Mac do not have a deadline to apply for an initial forbearance. Mortgage holders may not foreclose until July 31, 2021. If no forbearance is granted, these mortgages may be moved to foreclosure starting August 1, 2021.
If You Are at Risk
If you are behind on
payments and your financial situation is temporary, reach out to your landlord or
lender as soon as possible to see if they will work with you on some kind of
payment agreement. If they are unwilling to work with you, or your financial
situation is more permanent, you may need more help.
The Homeownership Preservation Foundation offers
homeowners and renters access to certified housing experts who will work with
you to develop a plan tailored to your unique situation. If your employer
provides financial
coaching, you will want to take advantage of that as well.
If You
Receive a Notice of Eviction or Foreclosure
If your landlord or
lender begins the process of removing you from your residence, don’t panic.
Check with your local housing authority to see if there are protections and programs in place to help you. In some
cases, you may want to seek legal help, so check with your employer to see if
they offer access to legal services as a prepaid benefit or through an employee
assistance program (EAP). You can also contact your local
bar association to look for legal help at little or no cost.
Key highlights from the American Rescue Plan Act of 2021 (ARP) signed into law on March 11, 2021.
What to Do If You Took a Coronavirus Related Distribution
February 22, 2021
Adapted from an article originally posted on Forbes.com
The 2020 tax season is upon us, and many people are wondering how the pandemic will impact their tax returns. One of the areas in question concerns the coronavirus-related distributions (CRDs). If you took these distributions, you now face the decision about how to include these CRDs in your tax filings for this year and beyond. In this post, I will seek to clarify the various options available for income inclusion and CRD repayment as per this IRS issued notice in hopes that you are better able to determine which approach provides you with the most financial benefit.
What is a Coronavirus Related Distribution?
The CARES Act, which was passed during late March 2020, allowed for penalty-free distributions from retirement accounts if specific conditions applied that proved you or your household were adversely affected by the coronavirus. You can read more about that here. If you qualified for this distribution and decided to take it, you were then given various options on how to pay the taxes or return the money into a retirement account without paying taxes and penalties. The option that you elect can greatly impact the taxes you pay, so it’s important to know what those options are so that you pick the optimal approach.
What are my options?
Option 1: Including CRDs as Taxable Income If you took a pre-tax CRD then it will be subject to federal income taxes. You can choose to include the entire amount of the CRD as 2020 taxable income. This election would have to be made by filing form 8915-E by the tax filing deadline (including extensions). Once you make this election, it cannot be changed. Otherwise, the default treatment is to include 1/3 of the CRD as income for the 2020, 2021, and 2022 tax years.
Why would I want to include my CRD in 2020 taxable income? If your income was negatively impacted in 2020 and you expect your income to return to normal or higher levels in 2021, it might present an opportunity to absorb that payment and pay lower taxes in a low-income tax year. In addition, if you feel tax rates might go up in the near term, this could make the potential tax savings even more impactful.
Why wouldn’t I want to include my CRD in 2020 taxable income? If you are unsure how your tax situation or potential income situation may change, you may opt to file an extension and take the wait and see approach. This can help you determine if it makes more sense to take the income in 2020, or defer part of it to a future tax year where you might receive more favorable tax treatment or decide to pay some or all of it back (more details on that below). Also, if you are expecting a refund and need it soon, you should weigh your immediate financial needs accordingly and may opt against extending the tax deadline.
Option 2: CRD Repayments You can choose to repay all or part of the distribution within 3 years of taking the CRD and apply the payments over the next 3 tax filing years (2020, 2021, and 2022). You can generally repay these distributions into an IRA or a company plan that accepts rollovers. There are 2 repayment options with a few nuances in each.
The first repayment option involves making an election to include the CRD in 2020 income as a one-year inclusion. If this option is selected then no matter when repayment is made within the 3 year period, 2020 CRD income will be reduced. Now the timing of this repayment really matters. If the repayment is made before the 2020 tax filing deadline, then the CRD is not included in 2020 income, and there is no need to file an amended return. If the repayment is made after the 2020 tax filing deadline, the income will have to be included as part of your 2020 income, taxes would be paid on that, and the only way to get that money back would be to file an amended return.
In addition, considering the longer-term trade-offs versus the shorter-term trade-offs is important. For example, putting that money back into your retirement account ASAP will allow that money to continue to grow tax-deferred for retirement. You can use a calculator like this one to estimate the growth of your savings. On the flip side, if your income is questionable and you are experiencing considerable financial insecurity, those funds might be better used to shore up your emergency savings. The decision you make can cost you time, money, and stress, which means that extra consideration should be taken to ensure you make the best decision for your specific situation.
The second repayment option involves when CRD income is spread equally in thirds over the next 3 tax filing periods: 2020, 2021, and 2022. Again, the way you file and decide to repay the CRD really matters for your tax planning and filing. Let’s break that down.
Repayment made before filing tax return: If a repayment is made before the tax filing deadline, that repayment will be applied to offset the CRD income that would have been included that tax year. If the repayment is made after the tax filing deadline then the payment would need to be applied to offset the next tax year’s CRD income.
Carry forward or carry back repayment: If you make a larger than 1/3 repayment before the tax filing deadline, the first 1/3 portion is applied to offset CRD income that is included for that tax year. The excess can then be carried forward to offset the CRD amount the next tax year (if applicable) or it can be carried back to a prior year or years by filing an amended return. It’s important to reiterate that the time period you are working in is the 2020, 2021, and 2022 tax periods so you can only play within those years when thinking about carrying forward or carrying back. You can see examples of how all these repayment options play out in the IRS notice (pages 13-16).
Deciding whether and how to take advantage of CRD income inclusion and repayment options has important financial consequences that require careful planning. A great place to start with any questions would be to consult an unbiased financial planner. Your employer might just provide you with one through a financial wellness benefit. Otherwise, many individuals might be better served by working with a qualified tax professional so that their CRD strategy is done in a way that maximizes your tax benefit and allows you to keep more money in your pocket.
Stimulus and 2020 Tax Return: Read This BEFORE You File
February 15, 2021
Modified on March 25, 2021
Believe it or not, tax season is upon us. On February 12th, the IRS began officially accepting tax returns for the 2020 tax year, but recent congressional action may affect whether you should file now, or later. Before sharpening your tax pencils, consider the following questions.
Q: With the passage of the American Rescue Plan Act of 2021, should I file my income taxes now or later? A: The Act includes a new Economic Impact Payment (EIP), or “stimulus” payment. Your eligibility for payment will be based on your last income tax return, so if your 2020 income was lower than your 2019 income, it may make sense to file now. If your 2019 income was lower, waiting to file may help with eligibility. But don’t wait too long! May 17th is the last day to file without an extension.[1]
Q: If I qualified for EIP payments but have not received them, how can I get them now? A: If you have not received your first or second EIP, or you believe you have not received the full amount you are entitled to, the only way to get those payments now is to file your income tax return and claim the tax credit for the amount you are entitled to but did not receive. This could mean a bigger tax refund.
Q: Other than the EIP/Stimulus, why should I file early? A: One reason to file early is to prevent fraud by someone filing a false return under your name to steal your refund. If this happens, when you go to file, the IRS will stop your return from getting processed while the identity theft is investigated, delaying the refund you are entitled to.
A simple way to avoid this risk is to file for an Identity Protection PIN (IP PIN). An IP PIN is a six-digit number that prevents someone else from filing a tax return using your Social Security number. The IP PIN is known only to you and the IRS and helps verify your identity when you file. There is no cost for obtaining an IP PIN, so go to https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin and request one today. (Note: If you file a joint return, you’ll want to request one for your spouse as well.)
Q: Do I have to report my stimulus payments as income? A: No. The stimulus is not income but must be reported or “reconciled” on your tax return. If you received more than you should have you will not need to pay anything back. If you received less than you should have you can claim the tax credit for the additional amount you should have received.
Q: Will the EIP/Stimulus payments give me a bigger refund? A: If you are entitled to a refund and have not received some or all the stimulus payments you are entitled to, claiming the credit for them on your tax return will increase your refund.
Q: If I owe taxes or back taxes, will the stimulus money be taken? A: Maybe. If you did not already receive the payment and are claiming it on your income tax return as a credit you may owe less tax than you otherwise would have. In this case, while you would not receive your stimulus as cash, it would lower your tax liability benefiting you.
If you are eligible for a refund but owe back taxes, the IRS can take the refund as always.
Q: When are my taxes due? A: Federal tax returns are due by May 17, 2021, but you can always file for an automatic extension if you need more time. However, if you think you will owe the IRS money you should file—or at least make payment—no later than May 17th to avoid late payment penalties.[1]
[1] Please note, the recent extension of the federal tax filing deadline to May 17, 2021 only applies to federal income tax returns and payments, but not state tax returns and payments. State filing and payment deadlines vary, so check with your state tax agency for more information.
How the First Week Executive Orders May Impact Tenants, Homeowners, Students, and Unemployed Workers
January 22, 2021
President Biden recently signed several executive orders that affect renters, homeowners, student borrowers, and recipients of unemployment benefits. Here is a summary of four of them, along with actions you may want to take, if applicable:
The eviction moratorium for renters is extended to the end of March for those filing single with $99,000 or less per year, or $198,000 or less for couples filing jointly. The extension does not alleviate the amount of back rent owed to landlords. To qualify for protection, you must meet the income requirements and attest to the following:
All efforts have been made to obtain government-provided assistance.
You are unable to make a full rent payment due to a loss of income, unemployment, or out-of-pocket medical expense.
Federal agencies making or guaranteeing mortgages are asked to extend the moratorium on foreclosures and the period to request payment forbearance on federally guaranteed mortgages to the end of March 2021. If taking advantage of the forbearance on interest and payments of your mortgage be aware: Once the forbearance period that you and the lender agreed to or provided under the different orders ends, payments will begin again and not only will your payments start again, but your delayed payments of principal and income plus any escrows will become part of the debt and make your payoff larger and longer. Consider if this might cause more pain in the future and how you might address it.
Federal student loan interest and payment pause continued to end of September. Borrowers can make payments thereby reducing principal more quickly since no interest is accruing. If you have not made payments during this suspension, make plans for dealing with these payments when they may start again in October 2021.
Unemployed workers may refuse unsafe work without losing unemployment benefits. If you are unemployed and collecting unemployment insurance benefits, you may refuse work deemed unsafe without fear of losing your benefits.
The Continuing Appropriations Act, 2021: $900B stimulus. What’s in it for us?
January 07, 2021
Modified on March 25, 2021
On December 27, 2020 the President signed the Continuing Appropriations Act of 2021 making it law and then avoiding a government shutdown while, among other things, addressing some issues facing those affected by the pandemic. Here are the COVID-19 related items included in the 5,539-page legislation. The most detailed breakdowns so far are here at the Washington Post and New York Times.
The law extends and increases Unemployment Benefits:1
Provides $300 dollars in additional benefits to those receiving unemployment. While this is less than the $600 extra benefit under the CARES Act that expired in July 2020, it effectively keeps the $300 extra benefit under Executive order that was set to expire at the end of 2020 and makes it easier for states to handle.
Continues Pandemic Unemployment Assistance (PUA) relief for self-employed, gig workers and other non-traditional employment workers. Essentially, continuing unemployment for these workers as well.
Continues Pandemic Emergency Unemployment Compensation (PEUC) which extends federal unemployment compensation when state unemployment benefits are exhausted. Under most state unemployment programs there are 26 weeks of benefits. The CARES Act extended that another 13 weeks. But the CARES Act extension has expired. With many sure to lose their benefits unless extended again, this continues the ability of individuals to keep unemployment benefits for the time being (11 more weeks). The law would increase the number of total weeks an individual may claim regular unemployment benefits and PUA or PEUC to a total of 50 weeks (26+13+11).
It renews and expands qualifications for the PPP program. This popular program provides potentially forgivable loans to small companies so they may stay open during the pandemic.
Creates funding for low-income and minority community development to help mitigate economic damage to those communities.
Gives funds for relief to transit agencies, airlines and airline contractors, airports, state DOTs, the motorcoach industry, and Amtrak.
Funding is provided for COVID-19 vaccine procurement and distribution, for the states to do testing, tracing, and mitigation programs, and mental health treatment and research related to the pandemic effect on mental health.
Funding is provided to help schools.
Low-income households, or households where a member is recently unemployed may be eligible for up to $50 for broadband internet access from their provider. The law will provide funding to providers to have them offer discounts to maintain or get access to broadband for these households.
Assistance for renters is continued and expanded:
Moratorium on eviction extended.2
Renters may apply for funds to pay past due and future rent.
Renters may apply for funds to pay for utilities and energy bills and prevent shutoffs.
Native American housing entities will be assured of $800 million for their renters.
If you have a Flexible Spending Account (FSA) your employer may allow you to carry over all unused health care or dependent care money still in the account at the end of the year and use it in 2021. The same would be true for unused 2021 money that you wish to carry over into 2022. The law also allows employers to raise the last eligible age for children’s dependent care to 13, from 12, for the 2020 plan year.
While not pandemic related, a very important part for you as an individual may be an end to surprise billing for medical bills – the relief is somewhat limited but should be of some benefit to avoid that out of network surprise large bill.
In an incentive to some employers, there is a tax credit for paid sick leave for employees.
There is an increase in food stamp funding (SNAP benefits).
Student Loan Repayment Assistance from employers is extended. The CARES Act earlier amended the Internal Revenue Code to permit employers to pay up to $5,250 of an employee’s existing student loans (including interest) on a tax-free basis through an educational assistance program for payments due from March 27, 2020 to December 31, 2020. The employer could pay the lender directly or reimburse the employee for the employee’s loan payments. The law now extends the end date for student loan repayment assistance to December 31, 2025.
Note: The law does not extend the IRA and 401(k) withdrawal or loan provisions of the CARES Act. The law also does not extend the mortgage forbearance provisions under the CARES Act.
1extended until September 6, 2021 under the American Rescue Plan Act of 2021
2extended until March 31, 2021 under the American Rescue Plan Act of 2021
Student Loans: An Update as of January 2021
January 07, 2021
As the US economy grapples with the pandemic there have been multiple initiatives to help manage what has been a difficult situation for millions. One of those initiatives was a move to help with student loan payments.
On March 27th, Section 3513 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act provided zero-interest on federal student loans until September 30th, 2020. In addition to waiving the interest, the CARES Act suspended payments until September 30th as well.
On August 8th, 2020, an Executive Order directed the Department of Education to extend the zero-interest and payment suspension provisions through the end of 2020. All borrowers with federally held student loans had their payments automatically suspended until 2021 without penalty.
As of December 4, the Secretary of Education had again extended the term of the Executive Order to continue the student loan relief until the end of January, 2021. This includes the automatic suspension of payments and 0% interest. Borrowers continued to have the option to make payments if they so choose. Doing so will allow borrowers to pay off their loans more quickly and at a lower cost since payments made during the period of interest suspension are directly on principal.
On his first day in office, President Biden signed an executive order asking the providers of federal student loans to continue the suspension of payments and 0% interest until September 30, 2021.
What do I do to opt in for suspending payments?
In a word, nothing. Where you would have had to move the loan into forbearance before, now borrowers of eligible federal student loans do not need to do anything to have their federal student loan payments suspended under the CARES Act and the subsequent continuations. The payments are paused, and the interest waiver is automatic.
So, what should I do?
It is a good idea to monitor your student loan statement to make sure you are not charged late fees by mistake. Also, monitor your credit to be sure you are not mistakenly punished for not making payments. If the zero-interest order expires at the end of January, but your finances are not back to normal, check with your loan servicer for an extension or new relief programs.
What if my student loan does not qualify?
To determine if your loan is federally owned go here. Federal Perkins loans held by the institution you attended, Federal Family Education Loans held with private and state lenders, and private student loans are not included in the CARES Act provision or extensions, but there still may be help available. Many banks and lenders are offering programs to offset the effects of this crisis for their customers but to get the relief, you will likely have to ask. Private student loan lenders may offer a form of forbearance, but you will need to clarify the details on the interest rates and fees involved. As you would with federal loans, be cautious about interest accrual in forbearance and get the details in writing.
2020 Tax Return: Changes to the Charitable Deduction and a $300 Charitable Deduction Even if you Don’t Itemize
December 22, 2020
The CARES Act, enacted last spring, includes several temporary tax changes to encourage charitable giving. Two are designed to help those individuals who give to charity in 2020.
New
deduction for people who don’t itemize
With fewer itemized deductions available since 2018, more
taxpayers file using the standard deduction (for 2020 – $12,400 for single
taxpayer, $24,800 for a married couple filing jointly). Nearly nine in ten taxpayers
now take the standard deduction (IRS IR-2020-278, December 18, 2020).
This means those using the standard deduction lose the ability to deduct their
charitable contributions. However, for their 2020 taxes, the CARES Act permits filers
using the standard deduction to claim a limited charitable deduction on
federal income tax returns for cash contributions made to qualifying charitable
organizations.
Under this change, there may be an “above-the-line”
deduction for individuals of up to $300 for cash contributions made to
qualifying charities during 2020. (The maximum above-the-line deduction is $150
for married individuals filing separate returns). Those taking this deduction
will be able to deduct $300 from their Gross Income to arrive at the Adjusted
Gross Income (AGI), much like adding it to the standard deduction itself.
Though cash contributions to most charitable organizations qualify,
those made either to supporting organizations or to establish or maintain a
donor advised fund, do not. Charitable deduction carry forwards do not qualify.
Cash contributions to charitable remainder trusts will not qualify.
Cash contributions do include those made by check, credit card
or debit card but do not include the value of volunteer services, securities,
household items or other property.
Itemizers
will have a benefit for 2020 with higher percentage of AGI available
If you itemize you may be able to claim a deduction for
charitable contributions made to qualifying charitable organizations. The
deduction is usually limited to between 20% and 60% of your Adjusted Gross
Income, depending on the type of gift to charity and the charity itself. The part that is not allowed to be used in
the current year will be “carried forward” for use on the future tax returns
for up to 5 years.
The CARES Act changes those AGI limitations for 2020. For this
year, you may be able to deduct up to 100% of your AGI, for qualified charitable
cash contributions. The IRS will
consider the allowance on a contribution-by-contribution basis.
Cash contributions to most charitable organizations qualify, but those made either to supporting organizations or to establish or maintain a donor-advised fund do not. Charitable deduction carryforwards do not qualify. Cash contributions to charitable remainder trusts will not qualify either (IRS IR-2020-278, December 18, 2020).
Other rules will apply so, as always, check with your tax
professional.
How to Decide If a 401k Loan is Right for You
November 23, 2020
Chances are that if you’re reading this, you’re probably considering taking a 401k loan, and you’ve most likely heard that it’s something to avoid. Generally speaking, we agree, but there are definitely reasons that it can make sense. Otherwise, why would the option even exist, right? Let’s go over the key things to consider so you can make the best decision for you and your future.
Why 401k loans get a bad rap
Let’s get the downside out of the way first so you can make an informed decision. The overarching reason that 401k loans get a bad rap is that there is a risk that loans can compromise your ability to retire when you want to. Here’s how:
Loss of growth potential of your money
Most likely, your 401k account contributions are being invested in the market for long-term growth. When you borrow that money, you’re taking it out of the market and missing out on the chance for the money to grow while you’re paying it back. The actual impact of this will depend on how your money is invested as well as what happens in the market while your loan is outstanding, but the more you borrow and the more often you borrow, the more this effect shows up and damages your retirement.
When you leave your job before it’s paid back
Some companies allow you to continue making payments on your loan if you leave your job before it’s fully paid off, but many require you to pay it back within 30 – 90 days after you leave. If you’re not able to, then it’ll be reported as a distribution and you’ll end up paying taxes on the amount you didn’t pay back plus early withdrawal penalties if you’re not yet age 59 ½. There are ways to stretch this deadline out by using an IRA, but make sure you understand fully how this works if you end up leaving your job with an outstanding 401k loan.
You’re typically limited to the amount and number of loans outstanding
Most companies limit the amount and number of outstanding loans you’re allowed to have at one time, which means if you have a future emergency need, this option may not be there for you if you take a loan now for something else. Deciding to take a loan comes down to understanding the alternatives you have available, which we’ll review next.
Alternatives to consider before taking a 401k loan
Whether or not these suggestions make sense will depend on the reason you’re taking a loan, but make sure you’re honest with yourself so you don’t regret this choice in the future.
Tap your emergency fund
Tapping your emergency fund is probably an obvious one, but we’re in the business of helping you find financial wellness, so we have to point out that an emergency fund is the best way to avoid borrowing from your retirement account. If you have one, consider tapping that first, since it’s highly likely that any interest you’re earning on your savings is lower than the rate you’ll pay yourself back into your 401k.
Explore using your home equity
If you have any home equity (your home is worth more than what you owe on your mortgage), consider looking into a Home Equity Line of Credit (HELOC). The interest rate you’ll pay may be lower than your 401k loan rate, and you’ll have more flexibility in making payments. This option makes the most sense in the case of financing home renovations, since you may be able to deduct the interest you pay from your taxes.
Take out a student loan for education costs
Again, this might seem obvious, but we’ve talked to many parents who started out thinking it would be better to borrow from their 401k rather than take out student loans to pay tuition costs, which could be a big mistake. For one, if the borrower ends up out of work, federal student loans offer more flexibility than 401k loans provide. But also, having your child take a loan out in their name will not only help them establish or increase their credit rating, but they will most likely be able to deduct some or all of the interest they pay on their loans.
Explore 0% or lower interest credit cards
It may seem strange to see a financial wellness company recommending credit cards, but here’s the thing: if you find yourself overwhelmed with debt and are exploring the loan as a stop-gap, don’t do it – credit card debt can be addressed in other ways and possibly eradicated in bankruptcy proceedings. 401k loans cannot. In fact, your 401k is shielded from creditors if you end up not able to make credit card payments or have to declare bankruptcy, so you’re better off not touching your 401k if you think there’s any chance you’re on that road.
When a 401k loan might make sense
All that being said, there are some instances where borrowing against your 401k is the best choice. Here are some common examples.
You’re looking to refinance higher interest rate debt
If the interest on your debt is high (approaching double digits), and you’ve already explored finding a lower rate with your creditor, then a 401k loan can help you save money and pay your debt off faster.
How to make the most of this scenario
Make sure you’re in a place where you won’t run your debt up again. This means you’ve created a budget that provides for unexpected expenses and have an emergency fund in place or in process. Paying off higher debt with a 401k loan only to find yourself running up the debt again will leave you much worse off, so commit to no more new debt until you’re totally debt-free.
Make sure you can afford the payment. Because 401k loans typically have a limit of 5 years or less, you may find your loan payment to be higher than your minimum debt payments. Make sure you can afford the hit to your cash flow, or you could find yourself accumulating more debt in order to stay afloat.
You need cash quickly
If you find yourself in a circumstance where you need cash quickly, like a medical emergency or a tuition bill that’s due before the loans come in, then a 401k loan can help bridge the gap in a pinch. Since the loan is secured by your retirement plan balance, you are essentially functioning as your own bank. This means no credit check. Also, the loan does not show up on credit reports, which avoids affecting your credit score.
How to make the most of this scenario
Commit to paying it back as soon as possible. Lots of people borrow from their 401k with the intention of paying it off quickly, like when tuition is due next week, but the student loans won’t be in until next month. Avoid the temptation to drag it out longer and stick with your original plan to avoid regrets.
Make sure you borrow enough to set yourself up for long-term success. If your reason for borrowing is dire like you are in danger of defaulting on your student loans (which often don’t go away in bankruptcy) or you’re facing eviction or foreclosure, consider borrowing enough to hold you over in that area, plus a little extra to set aside for future emergencies. This option can help you avoid a vicious circle of crisis – debt – recovery – crisis, etc.
You’re using it for a down payment on a new home
Most 401k plans offer extended repayment terms for money borrowed for a new home purchase. Because a home is expected to increase in value over the long-term and putting enough down can keep your mortgage interest rate lower, this option can make a lot of sense as a trade-off for keeping the money invested for retirement.
How to make the most of this scenario
Only borrow what you need. You’ll have to submit closing documents to secure the longer pay-back time, so make sure you’re only borrowing what you’re going to be putting down toward your new home purchase. Avoid the temptation to use your retirement to fund other expenses like moving fees and new furniture.
Make sure you can truly afford to buy a home. Beyond having a down payment, you should also have a decent emergency fund, AND home maintenance/repairs savings set aside, otherwise, this can be too risky of a move for you at this point. If buying a home is a financial stretch, and you end up losing your home, you’ll also lose your down payment which will affect your retirement.
The worst reason to take a 401k loan
We’ll just call it as we see it here – if you’re regularly borrowing from your 401k to fund things like holidays and vacations, you’re doing significant damage to your finances, and it’s time to find a new way to finance these life expenses. One suggestion is that the next time you’ve paid off your 401k loan, keep making the same payment amount into a savings account. Then when holidays or vacations roll around, you’ll have cash available and you can let your retirement stay invested to build a more secure future.
How To Prioritize Your Bills
November 23, 2020
When money is tight, you may find yourself wondering if you should be making trade-offs on which bills to pay on time, versus which to postpone until more money comes in. Big picture, think of your essential bills in the following categories:
Basic needs (food, medicine and shelter)
Things that enable you to keep working (transportation, childcare, cell phone and internet, if you work from home)
Keeping your credit score in good standing (debts and other bills for things that you can’t do without)
More specifically, assuming you’ve done all that you can to eliminate unnecessary bills for now, it’s a best practice to pay your bills in the following suggested order:
Food and medicine – visit food banks if possible, to keep this cost as low as possible.
Mortgage – contact a housing counselor ASAP if you don’t think you can keep up with your mortgage.
Rent – let your landlord know if you need to pay late or make a partial payment. Remember too, eviction doesn’t happen overnight.
Utilities – reach out to your electric, gas and water providers for payment plans if you’re struggling to pay in full. Most don’t report late payments until you’re over 30 days late.
Car payment and insurance – if you need a car to drive to work, then this is an important bill to keep current, but do your best to lower this cost if necessary by finding a cheaper car or re-evaluating your auto insurance coverage.
Child support – to avoid wage garnishment, even a partial payment is better than nothing.
Student loans – particularly federal student loans, which generally don’t go away if you have to declare bankruptcy and can lead to garnishment of your wages or your federal tax refund.
Taxes – if you have a payment plan with the IRS, you might look into modifying it until you get back on your feet if allowed.
Medical bills – contact your providers about payment plans before you skip a bill or put it on a credit card, knowing that this is especially important to stay on top of if you have ongoing healthcare needs. Most hospitals and doctors’ offices will work with you as long as you’re paying something each month.
Credit cards and other unsecured debt like payday loans – make sure you contact your card companies if you can’t pay your minimum due on time, but if there simply isn’t enough money, this is the last priority.
Collection accounts – make sure you know your rights and don’t let a debt collector talk you into paying them before you take care of all of the above for yourself first. Even then, it’s best to work with a lawyer if a debt collector is contacting you.
Get Help Now with These Free Financial Assistance Programs
November 23, 2020
If you’re reading this article and in need of financial assistance, please take a moment. Breathe. Life can bring hardships, sometimes unexpected, and it’s important to know who you can ask for help. Those who have needed assistance before you have helped to pave the way with an array of amazing resources that are designed to provide relief when you need it most.
National Agencies with Local Affiliates
Here’s a list of several national agencies and databases that have programs throughout the US to help people facing tough times. Many of them will connect you with local programs that can offer direct assistance or provide you and your family with food, shelter or other essentials, while others have application programs right on their site.
Applying for these will be easier if you first put together a spending plan. It’s a good idea to have your last paystub as well as a copy of your most recent tax return and W-2 handy when you apply. You may find it helpful to keep a running list of who you’ve contacted and what you’ve learned, as you’ll probably need to provide a lot of the same information to each agency.
Need Help Paying Bills – this site has put together a great collection of resources for all types of assistance programs, categorized and explained by type of assistance needed and available to you.
United Way – find your local affiliate at this site to see who they partner with in your community.
211.org – access information about local resources and services.
Salvation Army – click on ‘Get Help’ to be directed to local resources.
Feeding America – find your local food bank through this site.
Saint Vincent de Paul – find your local society and explore the resources available in your area.
NFCC – for credit counseling help that won’t scam you, contact the National Foundation for Credit Counseling.
LIHEAP – for state-based assistance with heating or cooling your home, find your state’s program on this site.
WIC – to apply for nutritional assistance for you and your children, contact WIC through the federal government.
US Government benefits – this site lists all the government programs that can help with food, housing, healthcare and other basic living expenses.
Additional Options
Utilities – Most utility providers have programs funded by the United Way or donations by neighbors in your own community. Apply on their website or contact them directly for temporary assistance with gas, electric, and water utilities.
Hospitals – Some offer assistance programs funded by donors, so ask the billing department if that’s an option. Don’t delay though; some have deadlines such as 90-180 days to apply.
Prescriptions – if your situation is short term, ask your medical provider if they can provide free prescription samples temporarily. Most want to ensure you don’t neglect your health and will have some available. If longer-term, reach out to the pharmaceutical company; many offer patient assistance programs for free or discounted medications.
Family & Friends – Asking for help can feel uncomfortable at first, but you may find that those closest to you are willing – even wanting – to help.
Remember to take things one step at a time, and don’t hesitate to lean on the resources you have available.
How to Minimize Taxes When You Take a Coronavirus-Related Retirement Plan Distribution in 2020
September 09, 2020
If you took or are considering a coronavirus-related
distribution (not a loan) from your 401(k) or traditional IRA between January
1, 2020 and December 30, 2020 the IRS , under the CARES Act, allows you to report
the income and pay the taxes from this distribution over a three year period. You could also avoid the income taxes
altogether if you “pay back” what you took out. Interpretation of the rules
and procedures regarding this recent legislation via the CARES Act continues to
evolve, but this is what we know so far.
Is/was your distribution coronavirus-related?
When the CARES Act was signed into law during late March
2020, many people mistakenly assumed they could take penalty-free early withdrawals
from their retirement plans for any reason (for example, to buy a house). This is not the case, however, according to
the IRS (Heidman, 2020, IRS, 2020b). Favorable and penalty-free tax treatment
of coronavirus-related retirement plan withdrawals are available only if
these specific conditions apply:
You, your spouse, or dependent(s) were diagnosed with SARS-CoV-2 or COVID-19 using a test approved by the Centers for Disease Control and Prevention;
You endured adverse financial effects due to quarantine, furlough, layoff, reduced work hours, or lack of childcare due to SARS-CoV-2 or COVID-19;
You were forced to close or reduce hours of a business you own due to SARS-CoV-2 or COVID-19, resulting in adverse financial consequences.
The individual having a reduction in pay (or self-employment income) due to COVID-19 or having a job offer rescinded or start date for a job delayed due to COVID-19;
The individual’s spouse or a member of the individual’s household (as defined below) being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19, being unable to work due to lack of childcare due to COVID-19, having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19; or
Closing or reducing hours of a business owned or operated by the individual’s spouse or a member of the individual’s household* due to COVID-19.
* For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.
At the time this article was written (December 2020), it is important to note that the U.S. Treasury Department and the IRS were still considering future guidance that could expand the list of factors that might determine whether an individual experienced adverse financial conditions and may qualify for favorable tax treatment of early retirement plan distributions under the CARES Act. In other words, proceed with caution if you are not sure if your actual or anticipated retirement account distribution qualifies as “coronavirus-related.”
Has your retirement plan at work adopted CARES Act
changes?
If you took a distribution from an Individual Retirement
Account (IRA), you can skip this part. However, if your distribution was or
will be from a 401(k), 403(b), or similar retirement plan sponsored by your
employer, this part does apply to you. Although the CARES Act makes
allowances for larger and tax-friendlier early retirement plan distributions,
it does not require employers to adopt these provisions. It simply makes
them available if your employer chooses to adopt them.
Specifically, “It is optional for employers to adopt the
distribution and loan rules of section 2202 of the CARES Act” (IRS, 2020).
Therefore, you should contact your employer before you request an early
distribution from your retirement plan and ask if your retirement plan at work
specifically adopted CARES Act provisions.
It’s also important to note that if your employer does not
implement the CARES Act rules, there may still be relief available for
distributions taken. Per the IRS, “Even
if an employer does not treat a distribution as coronavirus-related, a
qualified individual may treat a distribution that meets the requirements to be
a coronavirus-related distribution as coronavirus-related on the individual’s
federal income tax return” (IRS, 2020a).
How to spread out tax payments.
Assuming your retirement plan distribution qualifies under
the CARES Act, you do not have to include all of the distribution on your 2020
Federal Income Tax Return. Instead, you can spread the income (and related
taxes) over a three-year period. For example, if you took a $30,000
distribution in 2020, when you file your income taxes, you would simply report
$10,000 of income on your federal income tax return for each tax year in 2020,
2021, and 2022 (IRS, 2020). By including
only a portion of the distribution in each of the 3 years, you spread the tax
on the distribution over the three years as well.
How to avoid income taxes owed (i.e., pay back what you
took out).
You also have the option of not paying any income taxes at
all on your coronavirus-related retirement plan distribution if you move
funds back (recontribute) into a qualified retirement account (e.g., IRA,
401(k), etc.) within three years. For example, if you took a
coronavirus-related distribution from an IRA or 401(k) in 2020, the CARES Act
allows you to repay some or all of the amount you took out by placing funds
into an eligible retirement plan within three years of taking the distribution.
The amount “paid back” would be treated like a retirement account trustee to
trustee rollover, meaning the repaid amount would avoid federal income tax, and
it would also not count against the current year’s contribution limit (Heidman,
2020).
The way taxpayers will report these repayments
(recontributions) of coronavirus-related distributions is not entirely clear at
present (Heidman, 2020). However, it is
generally expected that IRS Form 8915-E (expected to be available before
December 31, 2020) and amended tax returns will be used to report
recontributions of coronavirus-related distributions (IRS, 2020). As the saying goes, “stay tuned for official
news and information.”
Where to find more information.
The IRS has provided a very helpful list of questions
and answers regarding tax questions related to coronavirus-related
retirement plan distributions. The Consumer Financial Protection Bureau (CFPB)
also discusses some helpful CARES
Act rules (Ortiz & Scheithe, 2020). As always, if you still cannot find
answers to your specific questions, consult with a local tax professional.
IRS. (2020b) Guidance for Coronavirus-Related Distributions
and Loans from Retirment Plans Under the CARES Act. Notice 2020-50. https://www.irs.gov/pub/irs-drop/n-20-50.pdf
Payroll Tax Deferral: What Does It Mean for My Paycheck?
September 09, 2020
On August 28th, 2020, the IRS issued it’s guidance regarding the August 8th executive order regarding payroll tax deferral for the rest of 2020. This order directed the U.S. Treasury to allow employers to stop collecting Social Security payroll taxes through December 31, 2020 for workers making less than $4,000 bi-weekly/ $104,000 annually. Recall that you pay 6.2% and your employer pays 6.2% in Social Security taxes on every paycheck up to $137,000 annually (the 1.45% payroll tax that goes toward Medicare would not be deferred). Usually, your employer withholds your 6.2% on your behalf and sends it directly to the IRS. Here’s what you and your wallet need to know about the changes:
This is a payroll tax deferral – not
forgiveness. If your employer opts to follow the executive order, you will
still owe those taxes come January 2021.
For example: If you make $50,000 and are paid
bi-weekly, this amounts to a $119.23 increase per paycheck through the end of
the year.
Those taxes will, however, need to be repaid
from January to April of 2021. Any amount not repaid by the end of April 2021 will
be subject to interest and penalties.
In short, as of this writing, this
is a payroll tax loan. It will need to be repaid by April 2021. So, if you get
a $119.23 increase in your bi-weekly paycheck in 2020; it will reverse in 2021,
reducing your bi-weekly income by that same $119.23 plus the $119.23 for
2021 payroll taxes.
Additionally, it’s important to note
that many employers do not have the payroll systems in place to implement the
deferral.
What to do if your payroll
taxes are deferred:
Plan to repay the loan starting in January 2021
Look for a high-interest savings account to store the funds
Make sure to keep all paystubs from September 1-December 31, 2020
If you leave your company prior to complete repayment of the deferred taxes, be prepared to have them withheld in a lump sum from your last paycheck.
Again, this is a loan that will require an act of Congress to be forgiven. If you do wind up with a deferral, save as much of those funds as possible to help keep you in the black come January 2021.
Mindful Money Management
June 29, 2020
As the world attempts to emerge from the Covid-19 lockdowns and tentatively eases up social distancing restrictions, I noticed something unusual. I haven’t been spending nearly as much money as I usually do. This makes sense, of course; I have hardly been going anywhere to spend money (except for online shopping at Amazon, that is). Being forced to limit our activities, and subsequently our spending, might be a silver lining to this whole pandemic thing and it has me thinking. Since we are getting accustomed to spending less because we were forced to do so, how can we steer this into an ongoing and positive savings behavior?
Most of us understand that having an adequate emergency fund is one of those fundamental financial priorities, yet keeping enough in that cash account is a challenge for way too many of us. Likewise, saving up for vacations and large purchases, rather than charging them to a credit card and taking forever to pay off an expensive balance is a habit with which many of us struggle. And there is the all-too-common struggle with getting out of debt. Since we are already slowing down our usual spending, why not channel some of that idle cash toward other goals we want to improve?
Easy to say, but not so easy to do, right? I agree. I also admit, even as a seasoned personal finance professional, I am not a fan of budgeting. Keeping track of my own budget, that is. I’m not anti-budget; you should have your own budget (or my preference, a “spending plan”). I just don’t enjoy the process of budgeting, and from my conversations with many people over the years, chances are neither do you. Let’s change that.
Becoming More Mindful
A few years ago, as my age and blood pressure began to noticeably creep up, I began exploring the world of mindfulness meditation as a way to relax, calm my noisy mind, and keep that pesky blood pressure at bay (yes, it did work; no BP meds for me!). As I discovered with my physical health, mindfulness at its core is the ability to focus, particularly on something you want to change, but without becoming overwhelmed or unduly emotional about it. I’m not the first person to marry mindfulness practices with money management, however.
The Japanese have been applying mindfulness to money for quite some time. They also have a lovely word for the tool they use, kakebo (or sometimes spelled, kakeibo, and pronounced “kah-keh-boh”). Creation of the kakebo concept is attributed to journalist Hani Motoko who in 1904 first touted this relatively simple household finance journal as a tool to help housewives keep better track of the household accounting. There is more to it than simple accounting, of course. More on that in a moment.
First, as an American who routinely coaches and counsels other Americans on money habits, let me first clarify the idea of mindful spending and then discuss how kakebo fits into the mix. Whereas a budget is largely a cold, heartless, unfeeling mathematical process that ruthlessly pits income against cash outflow, mindful spending warms up and humanizes this activity by including awareness (that’s the mindful part) of why we spend money on the things we do in accordance with not only our needs but also according to what is important and meaningful to us. As humans with big brains and opposable thumbs, we certainly apply logic to our decisions (budgeting), but ultimately, it is our feelings and emotions (mindfulness) that drive our actions. Why else would companies spend so much money on marketing and promotion?
As you are probably thinking, yes, mindful spending can seem like the touchy-feely-woo-woo side of personal finance. It is that, but it is also pretty easy to do. Mindful money management can be as simple as pausing for a moment before we pull out the cash, credit or debit card and think about how we are feeling as we start to make a purchase. Thinking about how spending makes us feel gives us an opportunity to check in with ourselves and identify habits we might want to change. So pause. Take a breath. What are you feeling? Is this expense a want, or a need, or a stress response? Will it be truly beneficial to you or to someone who is important to you? I told you this was going to get all touchy feely. It’s okay. Give it a try. Embrace it.
Create Your Kakeibo
If you want to take things a step further, this is where a kakeibo can help you. If you are familiar with the envelope system of budgeting, kakeibo uses that concept at its core. What makes kakeibo different, however, is its incorporation of the touchy-feely concepts related to how we feel about different expenditures. For instance, kakeibo categorizes all spending into just four basic categories:
Culture (think, museums, activity groups, club memberships, experiences)
Unexpected expenses (emergencies, repairs, etc.)
These simple categories can make the mindfulness part easier to manage as you focus on where spending does or does not match your goals and priorities. The entire concept focuses on four key questions to contemplate each month:
How much money is available to spend?
How much of it would you like to save?
How much do you spend each month?
Where are opportunities to improve?
Crafting your own kakeibo is very simple. Here is how to get started:
Calculate how much you spent on needs, wants, unexpected, and cultural purchases.
How much was left for savings?
Reflect on your performance (and write that down, too). Did you meet your goals? Why or why not? What will you focus on improving next month?
That’s it! You are now mindfully spending. Kakeibo was meant to be a physical, written process, but you can apply some automation to it if you like. Personally, I like to use the pen and paper method first, then switch to using an app or two. For instance, the GoodBudget app is free and simple, easily adapting to your kakeibo strategy. You can also record personal notes within the app to assist with capturing and focusing your mindful thoughts. Give it a try and don’t be discouraged if you note a few weak spots or experience a setback or two. As with meditation, the key is to keep doing it. There is no “wrong” way to go about it. Find your own path. You do you. Breathe.
Spending Less in Quarantine?
June 25, 2020
Have you ever felt like you could reach your financial goals if you just buckled down and did not spend money for a certain amount of time? With travel and opportunities to dine out limited, quarantine presents an opportunity to save some extra money if you are able to do so. Those who have had their income impacted can refer to this page. For those who are still getting their regular income, you may have a little bit more cash to work with at the end of every month to help reach your goals. Here are a few steps to seize this occasion.
Reacquaint yourself with your spending plan considering the current environment
To make the most of any surplus, you need to know how much there is and for how long it will last. One of my colleagues commented that she knew that she was spending more on things like groceries but her overall cash flow was less tight. By tracking your spending, you can anticipate if this is a short-term or long-term cash flow savings.
What’s different for the foreseeable future?
Working from home: If you are working from home for the foreseeable future, expenses on fuel, work attire, dry cleaning, dine-out lunches, and the occasional happy hour are likely curtailed. Use a spending tracker like Mint to determine just how much you are saving right now. Also, keep in mind that your utility bills may be higher from running air conditioning or heat all day when you would have normally been at work.
Childcare: Childcare may be permanently changed from daycare to some hybrid of parents and an occasional sitter watching the kids.
What’s temporary?
One-time savings: You may have had to scale back those summer plans. So, instead of buying plane tickets and a hotel, you may have settled for renting a van and an Airbnb. Summer camps may be canceled or significantly scaled back.
Payment assistance or payment deferrals: Have you received any rent or debt payment deferrals as a result of the pandemic? One example would be the automatic forbearance offered to those who have federal student loans.
Unemployment compensation: Your income may have seen a temporary bump if you were laid off because your unemployment benefit may have been more than your normal compensation.
If you find you have extra money what do you do with it?
Increase emergency savings: This situation has reaffirmed the importance of emergency savings. Even if you were not radically affected by the initial economic downturn, the long-term ramifications may reverberate through the economy for months if not years to come. Use those extra dollars to build up a cash cushion. You can start with a short-term goal of $1,000. A fully-funded emergency fund contains 3-6 months of living expenses.
401k Savings: Be sure you are contributing to your 401k up to the match. The current market volatility makes it a great time to take advantage of dollar-cost averaging.
Saving for goals: Can you use this time to accelerate the savings timeline for upcoming goals? Were you already hoping to pay off some debt or save for a home? This is your chance. If you have high-interest-rate debt (Interest greater than 6%), you can save yourself significant interest expense in the long run by paying it down now. If you are saving for a large purchase like a home, setting aside more now can help you purchase sooner and possibly position yourself to take advantage of these historically low interest rates.
Long-term goals: Once you have set aside what you need to claim your short- and medium-term goals and you still have extra cash left over, then it makes sense to think long term. Maxing out your 401k contributions can help with taxes today and build up your retirement nest egg. Are there stocks that you have your eye on given the most recent shakeup in the market? Have you considered investing in real estate as an alternative to your traditional savings? Once you have checked off the foundational principals of building up your savings and paying off debt, this can be an excellent opportunity to take a calculated risk.
Managing Your Credit Card Through the Pandemic
June 04, 2020
As a result of the economic downturn, millions of Americans have sought financial relief. Credit card companies have stepped up to offer support, but the question stands, is it in my best interest to take the offer or continue to pay as planned?
Should you take advantage of a deferred payment?
Probably the most known form of relief comes in the form of not having to make a card payment for a certain period. The name for this relief may be called payment holiday or payment deferral but regardless of the name the specifics are found in the fine print. While the large print language may explain that your COVID relief may come in the form of suspended payments, keep in mind the primary business of a credit card company is collecting interest on debt they are owed. While you may experience less monthly financial stress thanks to waived late fees and penalties, remember that deferred payment has not disappeared into thin air.
Based on my research, no credit card companies are offering relief from the monthly interest owed. In most cases the interest is simply added to the balance of the credit card. Many credit card companies are deferring the expected principal payments rather than adding them to the balance owed but that policy is not universal. In fact, one of my coworkers alerted me that her credit card company gave her a payment holiday without her requesting one but also added the suspended interest and principal amount to her principal balance.
Should you take these offers for reduced or suspended payments? If you are in a circumstance where you have been significantly affected by COVID financially and really need the relief, then deferring the payment can be useful. Just keep in mind that even though the company is waiving fees and credit reporting for this program it can still have a negative effect on your long-term financial wellness. Those payments you forgo are ultimately added to your principal balance. As a result, you are paying interest on not just your old purchases but also on interest accumulated and possibly the principal payments you missed. For this reason, if you can continue to make payments it may be a good idea to do so.
Strategically, you may be able to use these programs to pay off your debt faster. If you can confirm the principal portion of your minimum payment is not being added to your balance, consider putting your lower interest cards into deferment and use the principal savings to accelerate your payments on the highest interest debt. Keep in mind your credit card company will want you to explain how you are negatively affected by COVID before allowing you to do this.
Request a change in yourcredit terms: Credit cards tend to have flexible terms for the lender. They can change the rules on interest rates, rewards programs, and due dates with simply the issuance of a notice. Conversely, you as the borrower can ask them to make changes as well.
You can call your credit card company and ask them to make changes to make it easier for you to pay down your debt. They certainly have the right to refuse, but this may be an opportune time to reach out to your credit card company and ask them to lower your interest rate or move the due date to a better time. Also check to see if they will waive or lower annual fees.
If you plan to ask the company for an increase in your spending limit, you will want to know if they will be making a hard inquiry on your credit report to do so as this may affect your credit score
Additional time to earn rewards: Many credit card companies are extending the timeframe to accumulate points for sign-up bonuses.
Alternative uses for rewards: Several cards that have focused on travel-related rewards are shifting to allow points to be used to pay for groceries and food delivery. This could certainly help if you are in a cash crunch but keep in mind your long-term goals for those points. Eventually, travel will return.
Right now is a good time to review your credit cards and what they are doing to help their customers during the pandemic. You may be missing out on an opportunity to customize your credit situation for you.
Employee benefits: It’s More Than Just Pay
May 11, 2020
As part of employment packages, there is usually a whole
suite of benefits to entice employees. We all likely use some of our benefits,
but what else might be available to you?
The Big Three
Health Care- Shortly after asking “How much does
it pay?” comes “What are the health
benefits?”. For many employees this is a
high priority, as health insurance is often tied to employment.
Retirement plan- Most people don’t plan to work
forever, so having a retirement plan with employer matching dollars is an
excellent first step on the road to retirement.
Life insurance-
The most morbid subject of all; life insurance through your employer
gives access to coverage with minimal work and great ease.
These three are a great start, but what are some other
things that we should be looking for, especially in these uncertain times?
Legal
When I am asked the best time to write a will or trust, my answer as a financial planner is always, NOW. Typically run through your employee assistance program (EAP), companies provide some sort of legal service. It could be access to a lawyer or legal library with boilerplate documents. If your employer offers this service, please take advantage. Generally, you can get a will done inexpensively or even free! And then you can check that off the to-do list instead of ignoring it for another 2 years. Even better, you will know what other legal options you have available to you in case you might need a lawyer for something in the future.
Other Insurances
Short Term Disability: Planning a surgery? Or perhaps you are hoping to expand your family. Just worried that you might get sick and be out of work? Sounds like a job for short term disability. These typically run for up to 3-6 months and can cover up to 100% of your income while you are ill or out on leave. If you are sick for more than one week, this is a great way to avoid burning your time off and make sure that you have income while you are getting better. Some employers pay for this; others make it available as an additional benefit you can purchase.
Long Term Disability: This coverage helps if you need to be out longer than those 3-6 months. Most of the time this is optional and employee (read- by you) paid. There are some tax considerations for long term disability, so make sure to ask when exploring the options; but this a great option for if you get a chronic illness or have a major accident. But it needs to be in place before it’s needed
Long term care- Why would you look into long term care now? You are probably working and raising a family at the same time. Well, in the likely event you need long term care ever in your life, why not have it partially subsidized by your employer!?
The New Kids on the Block
Student loan assistance: Payment or assistance
with student loan payments, usually capped at an annual amount.
Education assistance: This may come in the form
of tutors or guidance counselors to help with assignments, or it could include
cold, hard cash to help pay tuition for education.
Employee discounts- Save money by working at your company! If
using this, please make sure it is a percentage discount, not a (potentially expensive) repayment plan
attached to your paycheck.
Childcare:
Some employers provide an on-site daycare facility or discounts
available at nearby centers offsite.
It doesn’t matter if you are brand new or have been there
for 20 years; there’s likely a benefit you can use that you don’t even know
about. So take this time to explore all the options; and as always, wash those
hands.
Action Plan: How to Invest in a COVID-19 Environment
May 11, 2020
Action Plan: How to Invest in a COVID-19 Environment
This action plan will provide guidance on how to manage your investments not only during the COVID-19 pandemic, but beyond.
During market downturns, having a solid plan to manage your investments for both short and long-term goals is vital to building financial security and providing you with peace of mind. The following is intended to provide you with a framework that you can immediately apply so that you can avoid common investing mistakes. We hope that this will help guide you in practicing solid investing fundamentals, which can lead to reaching your short and long-term financial goals.
1.) CREATE A PORTFOLIO THAT MATCHES YOUR TIME HORIZON AND RISK TOLERANCE:
Our emotions can get the best of us. The worst thing we can do is let them take over and react to them. Now is the time to take a deep breath and break down your finances according to your long-term goals and priorities. This will serve you well both now and in the future.
Don’t overreact to short-term losses in your long-term investment accounts.
This is a good opportunity to re-evaluate your current portfolio and make sure it’s right for you.
Determine what your investment goals are and the time frame for each.
Keep money in cash for short term goals over the next 5 years and consider investing more aggressively for longer term goals.
For longer term goals, find a risk tolerance questionnaire and use the guidelines to create your own portfolio or simply choose a target date fund or another asset allocation fund that matches your time horizon and personal comfort with risk.
Sticking to your plan and resisting your emotions is often the hardest part of investing, but by taking these steps, you will increase your peace of mind and the odds of reaching your financial goals.
Don’t panic sell your investments. Doing so could turn a temporary paper loss into a permanent one if you miss the recovery.
If you have more than one fund, see if you need to rebalance it back to your original target allocation. This will force you to buy more stocks while they’re relatively low in price or as Warren Buffett famously said, to be greedy when others are fearful.
If you have an asset allocation fund, it will rebalance itself for you. A target date fund will also automatically become more conservative as you get closer to the target date so you can truly “set it and forget it.”
Don’t stop your 401(k) contributions (make sure you’re at least continuing to get your company match.)
Being able to buy stocks on sale isn’t the only silver lining to a down market. Depending on how your overall portfolio has done, your need for cash, and your desire to minimize taxes in the short and long-term, a bear market provides several opportunities for many of us.
If you were planning to convert a traditional retirement account to Roth, this may be a good time to do so. You can pay taxes on the relatively low balance and when it comes back, the earnings can grow to be tax-free after 5 years and age 59 ½.
Harvest losses in taxable accounts to offset other taxes. This is a great way to turn investment lemons into tax lemonade. Just be sure not to repurchase the same or an identical investment within 30 days of when you sold it.
If you have lots of money in a taxable account, you may want to use it for individual stocks and other tax-efficient investments or consider working with an investment adviser who can help you manage the taxes.
As of April 27, 2020, the United States government made available an additional $484 billion in support of a second round of Covid-19 stimulus to assist small businesses. Two types of forgivable loan programs are available, the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program. If you own a small business that has been negatively impacted by the coronavirus, you may be eligible for one or even both of these programs. However, you will need to act quickly. The first round of small business stimulus money ran out pretty quickly, and this latest round of funding is expected to go just as fast.
The Paycheck Protection Program is a
new business loan stimulus package designed to help
companies avoid furloughs or layoffs by covering up
to eight weeks of payroll as well as some other costs
of staying in business. PPP loans are 100%
forgivable if at least 75% of the loan is used for payroll
costs. Funds may also be used to assist with interest on
mortgages, rent, or utilities.
The Economic Injury Disaster Loan (EIDL) program helps small businesses stay afloat during declared disasters such as hurricanes, fires, or pandemics like Covid-19. This type of loan includes an advance of up to $10,000 (if eligible) that is automatically forgiven. Note: At the time of this writing, the EIDL web page still states these loans are not available due to a “lapse of appropriations,” even though Congress recently approved additional funding that was set to be available as of 10:30 a.m. EDT on Monday, April 27, 2020.
Business
owners can apply for both PPP and EIDL, but funds from both programs
cannot be used for the same purpose. For example, EIDL funds cannot be used to
cover payroll if a PPP loan is also being used for that expense.
Who is
eligible?
Almost
anyone who owns a small business, including self-employed, sole proprietors,
gig workers, and independent contractors, may be eligible to apply.
Additional requirements for eligibility include:
Employs no more than
500 people (exceptions apply)
whose principal place of residence is within the US.
Can demonstrate that
the business was negatively impacted by the coronavirus such that current
economic conditions make the loan application necessary.
How
much can my business borrow?
Under
PPP, business owners can borrow up to the lesser of $10,000,000
or 2.5 times average monthly payroll. This amount is further capped at $100,000 annualized for
each employee.
The EIDL program provides
up to $2 million in
financial assistance, limited to the amount of actual economic injury
experienced by the business. Although business owners can qualify for both
programs, they should carefully evaluate which of the two programs might
be more beneficial and apply for that one first. Keep in mind, funds will be
distributed to eligible businesses on a first come, first served
basis. The US Treasury Department provides further guidelines to help
businesses calculate potential PPP loan amounts.
How
do these forgivable loan programs work?
PPP
loans are fully forgiven by the Small Business Administration (SBA) as long as
employees are retained on the payroll for at least eight weeks. The money must
also be restricted for use toward payroll (75%) and rent, utilities, or
mortgage interest. Under EIDL, a $10,000 loan advance
is provided and does not have to be repaid, even if the EIDL
does not get approved.
When to
apply
In
a word – Now. Since loan applications are processed in the order in which
received, and we saw how quickly the first round of small business disaster
assistance was snapped up, time is of the
essence. The official deadline for PPP loans is June
30, 2020, and the EIDL application deadline is December 16, 2020. However,
it is widely believed available funds may be exhausted well ahead of these
dates.
Where to
apply
You can apply for a PPP loan through any
SBA approved 7(a) lender or through any participating federally insured
depositary institution, federally insured credit union or Farm Credit System
institution. A good place to start would be a bank or credit union
where you already have an existing business relationship, which might help
speed along the application process.
The Small Business Administration also
created a PPP
lender search tool to help you
locate approved SBA lenders in your area. A summary of all
SBA Coronavirus
Relief Options is also
available.
If you are anxiously awaiting your Economic Impact Payment (a.k.a. coronavirus stimulus) from the federal government, you are not alone considering the 16 million or so American workers who have recently filed for unemployment in the wake of the COVID-19 pandemic. According to the Internal Revenue Service, automatic payment distribution to qualified recipients is scheduled to begin during the week of April 13, 2020.
For those who have already filed their 2018 or 2019 federal income tax returns, there is little else to do except “hurry up and wait.” The same goes for recipients of Social Security retirement, disability, or survivor payments, along with Railroad Retirement or survivor benefits. The IRS already has contact information for these people, and they do not need to take any additional action. While you are waiting for the stimulus dollars to arrive, the IRS is also releasing a “Get My Payment” tracking tool by Friday, April 17, 2020. Stimulus recipients can use this application to:
Check payment status
Confirm if they should expect direct deposit or a paper check
Enter your bank account information for direct deposit if the IRS does not already have that information
If you think you may qualify for a stimulus payment, but you have not filed an income tax return for 2018 or 2019 (not everyone is required to file), you may need to take some extra steps. The IRS has established a “Non-Filers: Enter Payment Info Here” feature on their website to assist with determining payment eligibility and sending economic impact payments to qualified non-filers.
