The COVID-19 pandemic relief legislation included provisions for the SECURE Act and the 2020 CARES Act as well as the Consolidation Appropriations Act. Depending on your individual circumstances, the benefits of these programs are far-reaching whether you are a young adult or getting ready to retire. It is important to consult with your financial, tax and/or legal advisors to better understand how these programs may impact your personal retirement savings and your income tax return.
Let’s look at what these Acts provide and how they may impact you.
What Is the SECURE Act and Why Is It Important?
SECURE stands for Setting Every Community Up for Retirement Enhancement. The goal was to make retirement savings more accessible and help you save for retirement. It’s a big deal. This is the biggest retirement reform to impact the economy since the Pension Protection Act of 2006.
Key Changes in the SECURE Act -- Here’s how it may affect you:
- Required Minimum Distributions
- The age for the required minimum distributions from your 401(k) plan or IRAs has now been raised to 72. Before SECURE, you had to start drawing down your account at age 70.5.
- Continued Retirement Savings
- Regardless of your age you can continue to contribute to IRAs as long as you’re still earning income. Before SECURE, you were not allowed to do this if you were at the mandatory distribution age of 70.5.
- Changes to Inheritance Rules for Retirement Accounts
- If you inherit 401(k) or IRA funds from someone other than your spouse, you’re required to withdraw it completely within 10 years rather than keeping it as a tax-deferred investment over your lifetime.
- Penalty-Free Withdrawals for Certain Life Events
- You can withdraw up to $5,000 from an IRA without penalty for certain expenses, such as adoption or the birth of a child. You will have to pay taxes on it.
- Withdrawals for Student Loans
- You can withdraw up to $10,000 from a 529 plan to pay for principal and interest on qualified student loans for a beneficiary.
What Is the CARES Act and Why Is It Important?
CARES is the acronym for Coronavirus Aid, Relief, and Economic Security. It’s a $2 trillion stimulus package passed in an attempt to mitigate the impact of the COVID-19 pandemic.
Key Benefits of the CARES ACT -- Here’s how it may affect you:
- Stimulus Payments
- The CARES Act provided $1,200 stimulus payments for most taxpayers earning less than $75,000 per year. It also provided another $500 for each dependent child under 17.
- Extra Unemployment Benefits
- Unemployment benefits were increased up to an additional $600 per week for 4 months. Benefits were also extended to self-employed workers, independent contractors, and people with limited work history. At the same time, the CARES Act also increased the number of weeks that unemployment benefits could be received.
- IRA and Retirement Plan Distributions Penalties Waived
- The 10% penalty for early withdrawals from qualified retirement accounts has been waived if the funds are used for COVID-19 related purposes. This applies if you’ve been diagnosed with COVID-19 or you’re going through “adverse financial consequences” as a result, such as being laid off, furloughed, had work hours or pay reduction, or are unable to work because of a lack of childcare.
- Student Loan Relief
- Payment and interest of federal student loans was suspended for six months. This does not apply to private student loans.
- Charitable Giving
- Even if you don’t itemize your taxes, donations to qualified organizations of up to $300 can be deducted for contributions in 2020. It also temporarily suspended limits on charitable contributions.
CARES Act Benefits Extended
The Consolidation Appropriations Act, 2021 was signed into law on December 27, 2020. It contained another $900 billion in stimulus relief, extended some benefits, and added some new ones.
- Extended Unemployment Benefits
- Those now collecting unemployment benefits may also be eligible for Federal Pandemic Unemployment Compensation (FPUC), which provides an additional $300 per week from January –March 13, 2021.
- Additional Stimulus Checks
- Another $600 in stimulus checks was authorized for most taxpayers with adjusted gross incomes less than $75,000.
- Emergency Rental Assistance
- $25 billion was designated to assist renters that are unable to pay their rent or utility bills related to financial hardships suffered from COVID-19.
- Eviction Moratorium Extension
- The latest legislation extended the moratorium on evictions for failure to pay rent for tenants with annual income of less than $99,000 through January 31, 2021.
As you can see, there’s a wide range of benefits with significant implications related to both the CARES Act and the SECURE Act. Each of these key changes or benefits is full of nuances, including financial thresholds and certain restrictions and will impact everyone differently. Consider consulting with your financial, tax and/or legal advisors to better understand how these programs may impact your retirement and taxes.
Stimulus Update: The US Senate voted to pass the budget resolution for the Biden administration’s COVID-19 relief package and it is expected a bill will be passed in mid-March. The $1.9 trillion relief package would be used to speed Covid-19 vaccine distribution, extend special unemployment benefits and make direct payments to people to help them pay bills and stimulate the economy.
You can rely on Lakeland Bank to provide the financial resources and services you need. In these uncertain times, its normal to have questions about how recent events may impact your financial goals. Visit Lakeland Bank for the latest information related to pandemic stimulus relief and consider meeting with one of our financial advisors who can offer insight and ideas to help you pursue both short and long-term objectives.
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Want more helpful information? Read our Blog “The Key Estate Planning Documents You Need” to learn how to be prepared for the future.
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Raymond James financial advisors may only conduct business with residents of the states and/or jurisdictions for which they are properly registered. Therefore, a response to a request for information may be delayed. Please note that not all of the investments and services mentioned are available in every state. Investors outside of the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this site.
Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of Raymond James, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Content provided herein is based on our interpretation of the SECURE and CARES Act Stimulus and is not intended to be legal advice or provide a tax opinion. This document is a summary only and not meant to represent all provisions within the Care Act Stimulus.
