Protect your money during the Covid-19 Pandemic

AARP Bulletin Vol. 61 #4 May 2020

It hasn’t been declared a recession, however, you have probably seen the value of your retirement IRA continue to fall and unemployment at an all time high. Many things are out of your control, but let’s look at some areas you do have some control over.

The CARES Act provides $1,200 per individual with either a direct deposit into your bank account or a government issued check. There are stipulations on this, you must have filed a federal income tax return for 2018 or currently receiving Social Security and not earned more than $75,000 as an individual or $150,000 for joint filers, plus $500 per dependent up to four that are under age 17. This could mean up to $3,400 for a family of four. If you did not file your 2018 Federal tax return the US Treasury Department is launching a web-based portal for these persons to provide their banking information so that they may receive their payments immediately as opposed to a check in the mail. For the most up to date information, click here .

The May, 2020, issue of AARP Bulletin states; Under the CARES Act, enacted March 27, people who were laid off because of the coronavirus are eligible to get an additional $600 per week until July 31, 2020. This federally funded $600 weekly benefit extends to people who aren’t traditionally covered by state unemployment insurance. Under what’s called the Pandemic Unemployment Assistance program, the self-employed, independent contractors and so-called gig workers are covered by unemployment for up to 39 weeks if they lost their jobs as a direct result of the pandemic. Another program, the Pandemic Emergency Unemployment Compensation program, gives an additional 13 weeks of federally funded unemployment insurance payments.

If you are Social Security retirement age (62 if born before 1955, or 66 if born after 1955) you may look into filing for Social Security benefits. This may allow you to refrain from tapping into your savings. Additionally, you have 12 months to withdraw your claim and repay the money you received interest free. Using this tactic may give your investment portfolio time to regain some of the losses. However, if you DON’T rescind the filing and pay back the money within the 12 months, it becomes permanent.

An additional benefit of the Coronavirus relief package is that you don’t have to take the Required Minimum Distributions (RMD) from your retirement accounts this year. These are the required distributions of your traditional IRA’s, 401K’s and retirement accounts at age of 70.

Make the most of your tax refund

In 2019, sixty seven (67%) percent of all taxpayers received refunds that averaged $2,860. Now what do you think what be the best thing to do to maximize that amount? Let’s look at a few scenarios; Are you still working? Or, are you retired?

First let’s look at you are still employed. A good rule of thumb is to have six months of living expenses saved for the event that you get laid off or get sick and can’t work. This would be a good time to start that savings account. Do you have credit card debt? Another positive for the refund would be to pay off or pay down that credit card debt. You could save thousands of dollars in interest payments by applying your tax refund to the credit card bill. Have you made any plans for retirement? You could use that tax refund to open an IRA account. A ROTH IRA is a great vehicle to fund your future. A ROTH IRA is post taxed and when you are eligible to legally withdraw it, you don’t have to pay any taxes (even on the profits you made from the investments). This could be a good way to supplement your retirement income.

OK, let’s look at the option that you are already retired. If you are retired hopefully you are receiving some form of retirement income. Once again, paying off or paying down credit card debt saves you tons in interest. Then, once you have the credit card payments eliminated you can shift those payments to a savings account or some other debt. If you still have a mortgage, use the money you were paying on the credit card to pay extra principal on your mortgage. Paying an extra one payment a year will take a 30 year mortgage to approximately 18 years.

Either way, put your refund to good use and reap the benefits.