What does this stimulus package mean?
Congress has passed a $2 trillion economic stimulus package aimed at helping people financially impacted by the coronavirus pandemic. If you have an adjusted gross income of less than a certain amount you could qualify for a check. Additionally, the package includes temporary penalty-free 401k withdrawals.
We’ve outlined more of the details of the pandemic stimulus package below. But before we get into them…here’s a little context.
The world has changed…
It’s crazy to think that just over a month ago, the US economy was near record low unemployment and the stock market was at all-time highs. To say the world has changed quite a bit in the last month would be a drastic understatement.
Since reaching new all-time highs in February, US stocks completely erased more than three years worth of gains in what felt like the blink of an eye. While stocks appear to have already recovered some of those losses, this week’s new unemployment claims spiked to levels that appear more like a typo than reality. In fact, this week’s jobless numbers more than quadrupled the previous record, coming in at 3.28 million new claims – more than 10 times the previous week! So why is this happening?
To state the obvious, asking hundreds of millions of people to stay home from work. While undeniably necessary to slow the spread of the virus at this point, it’s bound to have some pretty devastating effects on the economy.
As an attempt to mitigate the financial impact of this economic shutdown on individuals, families, and businesses, Congress has passed a massive $2 Trillion economic “stimulus” package that includes direct payments to individuals and families most likely to be negatively affected financially from this difficult period. While the bill itself is reportedly more than 800 pages long, and includes billions in bailouts to large corporations and essential support to small businesses, we’re here to get you the info and advice that is most likely to impact YOU and your personal and/or family finances.
Who does this stimulus package help?
If you have a Social Security number and have adjusted gross income of less than $75k (individuals) or $150k (married couples), and no one else can claim you as a dependent, you could receive $1,200, or $2,400 respectively. In addition, families with children under the age of 16 will receive $500 per child. So a typical family of four would stand to receive a one-time payment of $3,400, as an example. There are phaseouts for individuals making between $75k – $99k and also for married couples with no children, making more than $198k. Head of household filers can expect the full amount if they earned less than $112,500.
Check out our 2020 stimulus check calculator to get a better idea of what YOU may expect.
What is the intention of the stimulus?
Stimulus packages are nothing new. The government has stepped in to provide an economic boost to individuals and businesses several times in the past. But this time, rather than attempting to encourage people to get out and spend this money on couches and new TVs, this is more like a rescue than a stimulus. We’re being asked, for the benefit of public health, to stay inside and avoid many of the activities that keep the economy chugging along in normal times. With millions of people suddenly losing their jobs, being asked to not work, and still needing to pay their bills, sending people money and expanding unemployment benefits significantly are quick ways to help lessen the ripple effects of this Pandemic on the economy, until we are able to defeat it, which we will!
When can I expect my money?
If you’ve provided your bank information to the IRS for tax purposes, like payments or refund direct deposits, you should receive your payment fairly quickly and seamlessly, without needing to do much of anything. The IRS will use the most recent tax information they have for you, likely either your 2018 or 2019 adjusted gross income (if you’ve already filed for 2019). Specific timelines have not yet been released and may depend on your bank. If your bank information is not on file with the IRS already, there may be additional steps required and the process is expected to take no more than 3 weeks.
Where should I put this money when I receive it?
This is a highly personal decision and one that obviously depends on your own unique financial situation and any immediate or anticipated effects of this crisis on you and/or your family. Keep in mind that if you have not lost income and are able to continue paying your bills on time, it may be a good idea to just park the money in a savings account to give your emergency savings a boost until it may eventually be needed.
Many individuals that find themselves in a very fortunate situation and do not anticipate many, if any, financial disruptions from all this, could also consider donating a portion of their money to local charities or supporting local retail stores and restaurants that will surely struggle in the coming months.
Emergency provisions for 401k withdrawals
Along with direct payments, the bill also includes some temporary provisions that allow for penalty-free early withdrawals from retirement plans and some added flexibility when it comes to 401k loans. Individuals will be allowed to withdraw up to $100k from qualified retirement accounts for coronavirus related purposes without the typical 10% penalty prior to age 59½.
It’s important to understand that this money will still be taxable, but the new provisions allow the taxation to be spread over three years. That said, it still could be a significant tax hit to you. Money withdrawn will also be allowed to be recontributed to the plan within three years, regardless of annual 401k contribution limits.
Please understand that these provisions, while well-intended and worth looking into for some individuals, should not be used unless it is your last resort, in our opinion. The truth of the matter is that this Pandemic is certain to cause financial hardship for millions of people and some will absolutely need to resort to dipping into their nest egg just to get by. These provisions allow for this without additional hardship caused by the usual 10% penalty. But just because there is no penalty, does not mean there isn’t still a long-term cost to doing so.
It’s important to remind everyone that dipping into your retirement account(s) early locks in losses that have likely resulted from this downturn in the stock market, without giving your account a chance to recover with the overall market. You also lose the power of compounding on that money from staying invested over time. These provisions may absolutely be necessary right now and can benefit many that truly need the relief, but make sure you have exhausted all other sources of savings before considering early withdrawals from your retirement account(s).
Watch out for stimulus package scams!
Newly introduced government programs and initiatives are a scammer’s best friend. Please beware of calls, emails, and even snail mail, from unknown places, or even places that appear to identify as the IRS or any government agency. No legitimate source should ever contact you requesting for you to say or enter your social security number, credit card, or bank account numbers over the phone or via email. These times of crisis can often bring out the best in most of us, but they can also present unique opportunities for scammers to prey on the most vulnerable and desperate among us. Be vigilant.
Blooom is here to help clear up any confusion
We all have so much on our minds right now and the last thing we need is more confusion. Please reach out to us if you have any questions or concerns during this difficult time. It’s what we’re here for!
The information is provided for discussion purposes only and should not be considered as advice for your investments. While the data from third parties is believed to be reliable, we cannot ensure the accuracy or completeness of the data provided. Blooom does not provide tax advice. Consult a tax expert for tax-specific questions.
Published on March 27, 2020