Hi everyone.  Below is a quick summary of the COVID-19 legislation that affects retirees.  Before jumping into that, a quick apology.  Sorry I haven’t written much lately.  January and February are normally very busy months for me as I meet with clients for annual reviews.  Just as that was wrapping up, the world (and markets) went haywire with the pandemic and I’m just now coming up for air.  

New Rules That Affect Retirees

The coronavirus stimulus packages contain something for (almost) everyone: businesses, individuals, students and yes, retirees.  I won’t bore you with a comprehensive list, but I’ll give you a quick overview of the elements that impact retirees.

Changes to Required Minimum Distribution (RMD) rules: The CARES Act allows you to suspend RMDs for 2020 from 401(k)s, 403(b)s and IRAs.  If your IRA took a hit and you don’t need the money, it’s probably a good idea to skip your 2020 RMD.  That will hopefully give your account time to recover from the recent downturn.  If you have your RMD set to happen automatically each year, you’ll want to call your adviser or IRA custodian to stop it.  If you’ve already taken it for the year, there is a provision that allows you to put it back.  Certain restrictions apply, so check with your IRA custodian for details.  Also keep in mind that Congress made another change to RMDs at the beginning of the year that pushed the required age from 70 ½ to 72.  

Penalty waived for early retirement withdrawals: Normally, you have to pay a 10% penalty if you take a distribution from your IRA prior to age 59 ½.  That penalty is waived for 2020 on amounts up to $100,000 for anyone affected by COVID-19 (e.g. sickness, job loss, reduced hours, etc.).  You’ll still owe taxes on the distribution, but you can spread the taxes out over three years.  And if you end up not needing some or all of the money, you can put it back into your IRA within three years and that contribution won’t count toward your annual contribution limit.

Stimulus checks: Even if you’re retired and not working, you may still be eligible for a stimulus check.  The CARES act provides one-time payments of $1,200 for individuals and $2,400 for couples.  The benefit begins to phase out at adjusted gross income of $75,000 for single filers and $150,000 for those married filing jointly.  They phase out completely at $99,000 for singles and $198,000 for married filing jointly.  Initially, people were required to file a 2018 or 2019 tax return in order to receive the benefit, but many retirees are not required to file a tax return, so the government now says it will look at SSA-1099 benefit statements.  If you are receiving Social Security and are eligible for the benefit, the government will send out your stimulus check automatically in the same manner that you receive your regular benefits (likely via direct deposit).  

Expanded loans from qualified plans: If you have a 401(k) or other qualified plan, you can now borrow 100% of your vested account balance, up to a maximum of $100,000.  The deadline to initiate the loan is September 23, 2020.  If you already have a loan outstanding, you can delay repayments for up to one year.

Delayed tax filing deadline: The due date for filing federal income tax returns (and paying any balance due) has been moved from April 15, 2020 to July 15, 2020.  This extension applies automatically to all taxpayers and you don’t need to file any additional forms to qualify.  The delay applies to 2019 returns as well as estimated tax payments for Q1 of 2020 that would otherwise have been due on April 15.  If you’re still unable to file by July 15, you can file for a normal extension using Form 4868.  Keep in mind that the regular rules still apply to that second extension (i.e. it extends the due date of your filing, but not the due date of any taxes due).  Not all states extended their filing deadline, so be sure to check your state’s deadline to make sure you file on time.

Delayed mortgage payments: The CARES Act allows certain borrowers to delay their mortgage payments for up to a year.  Be careful with this provision, however, because depending on who owns your mortgage (your bank or another servicer), you may be allowed to tack the payments onto the end of the loan or you may be required to pay all of your back payments in a lump sum at the end of the forbearance period.  Check with your mortgage provider for details.

Medicare and COVID-19: Under earlier legislation (the Families First Coronavirus Response Act), health plans are required to cover COVID-19 testing at no cost to the patient.  If you’re already on Medicare, it provides coverage as well.  Medicare will cover COVID-19 testing and also covers hospitalization and treatment.  In addition to these benefits, Medicare has expanded its coverage of telehealth benefits.  For more information on all these things, visit https://www.medicare.gov/medicare-coronavirus.  

These are definitely unprecedented times.  Stay safe and touch base if you have any questions or if there’s anything I can do to help you.

Be Intentional,

Joe