Decisions, Decisions, Decisions: Initial thoughts on the Stimulus Bill
With the stimulus bill now passed in the senate and likely to pass in two days in the house, we can start thinking about what this means for you. Remember, this is not passed into law, it has only passed the Senate. Anything can happen. Also, I am no government speak expert, so this is with the caveat that I am misreading or misinterpreting the incredible jargon that government bureaucrats insist on. But I have done my best to sift through this sucker and pick out some relevant topics to consider:
In no particular order, here are initial thoughts.
Stimulus payments: Most of you reading this will get a stimulus payment, which will be welcome. It would be $1200 for individuals or $2400 per married couple plus $500 per kid. The Adjusted Gross Income limitation for full benefit is $75,000 for individual or $150,000 for a married couple. It’s not a hard stop at those AGIs. The rebate amount is reduced by $5 for each $100 that a taxpayer’s income exceeds the phase-out threshold. The amount is completely phased-out for single filers with incomes exceeding $99,000, $146,500 for head of household filers with one child, and $198,000 for joint filers with no children. You do not have to apply for this however pay attention to how they get the AGI. If you are at the line of eligibility then choose carefully when you file taxes. If you filed 2019 they will use that. Otherwise, they will use 2018. Maybe worth thinking about the timing of filing 2019.
Unemployment Insurance: If you are unemployed, apply. Think you aren’t eligible because you were a contractor? Well, it looks like the bill set to pass has carved out a special unemployment eligibility for people who were contractors, limited work history, etc. Incidentally, my husband is going down this path now since we had to shutter our salsa dance venue. I will be providing updates to the Ladysplaining Money fb page and adding to this particular blog as we learn more. Once you apply, see my recent blog on lessons learn from quarantine and a slower pace.
Retirement account withdrawals: Withdrawal from retirement accounts will be temporarily penalty free (the 10% penalty for early withdrawal before retirement). But, please, I beg you. Look for every last nickel under the couch before going to your retirement accounts for relief. If you withdraw now, it’s locking in massive losses and is reducing precious funds you will need for retirement. Plus you still have to pay income taxes. I know it can be tempting to look there, but one of the greatest regrets people have later in life is that they liquidated their retirement accounts over time. They were left with very little when they had virtually no levers to pull or options for employment. As hard as it is now, consider how hard it will be for your future self. Defend her money with everything you have.
Retirement account change while retired. For 2020, it looks like they might waive the requirement for minimum distributions. Most of our retirees use a bucketing plan and have a cash account to live on so that they don’t have to pull from retirement accounts during stock downturns. We love the idea that you can leave your money in the account during 2020, spend money out of your savings account and not have to touch the retirement account at all. This means no need to pay income taxes with deeply discounted dollars on withdrawals. That money gets to stay in your account and (eventually) recover losses.
Student loans: If you have student loans please read carefully. We don’t have the final details, and it is a mess. We literally hear something new every day. We want to wait for the final passage in the House signed by the President before we take any action on student loans. But it doesn’t hurt to start understanding what the likely outcome would be (based on the current Senate bill) and what action makes the most sense for you when the final bill passes.
Here is what I know. First of all, if you are in the public student loan forgiveness program (PSLF) then please make sure that anything you do does not jeopardize that. STAY IN PSLF. It looks like student loans will be interest free 6 months and payments will not have to be made for 6 months. But here is the kicker, for those in the income driven repayment programs (IBR, PAYE and REPAYE) and PSLF, even if you don’t make payments during those 6 months, you might be credited as having made payments toward those programs. Here is the language from the Senate bill: “CONSIDERATION OF PAYMENTS.—Notwithstanding any other provision of the Higher Education Act 11 of 1965 (20 U.S.C. 1001 et seq.), the Secretary shall deem each month for which a loan payment was suspended under this section as if the borrower of the loan had made a payment for the purpose of any loan forgiveness program or loan rehabilitation program authorized under part D or B of title IV of the Higher Education Act of 1965 (20 U.S.C. 1087a et seq.; 1071 et seq.) for which the borrower would have otherwise qualified.” Let’s wait and see, but that sure sounds good to me.
1. If you have federal student loans, you can put in an application with a student loan refi company to try to lock in these record low rates, but they are right now only locking in rates for 90 days. You would be crazy to get out of an interest free, no payment loan into a refi for the next 6 months. What I would probably do is wait 90 days then lock in the rate so that at end of September you have a refi as an option.
2. If your loans are all private (not in the federal student loan programs), go refi now. Rates are as low as we have ever seen them.
3. If you have federal student loans and have credit card debt or have not built that emergency fund, this is your chance. Since you won’t be making payments on student loans, this is a chance to use those payments to pay off higher interest debt and/or get a cash cushion in an emergency fund. Oh, and while you’re at this awesome action taking, call up your credit card company and try to renegotiate everything from the interest rate to the loan balance. They are ready to talk. And it doesn’t hurt to ask.
Charitable contributions: Hey, guess what? Remember how the tax changes a couple years ago made it really hard to get a tax deduction anymore for giving? Well, now you might get to give up to $300 and actually get credit for it, even if you don’t itemize. We will keep watching that one.
Business owner changes are pretty significant, and those will be addressed in the Save10 Small Business Edition facebook group. Please join us if you are a small business owner.
My friends, I wish you beneficial action to shore up your finances but mostly I wish you peace within the storm. Action on what you can control feels good when everything else feels out of control. So let’s take action together and get through it together.