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Treece Talk: The CARES Act & Your 401(k)

| May 08, 2020
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Putting the breaks on the economy to stop the spread of COVID-19 has caused job losses.

Unfortunately, South Florida’s economy is particularly vulnerable because travel and tourism drive business. From the cruise lines and airlines to hotels and restaurants, many of our neighbors get their money to put food on their tables from these industries.

We also have a huge healthcare industry that is under increasing stress, applying the full dimension of their efforts to the task of saving an ever-growing number of people, particularly older adults.

Like for many of my neighbors, this is personal. American Airlines employs my husband and many of our friends, who have joined others who have been furloughed or laid off altogether. Many of my clients at Treece Financial Group are older adults, who have either retired or are being offered retirement. All this change creates a sense of instability and fear, which spurs people to react emotionally to sharp declines in the stock market.

All, however, is not lost. There is hope for a recovery and to build a bridge to that recovery, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, providing businesses and individuals with trillions of dollars in relief. But that money won’t cover all necessary costs in these tough times.

So, if you are short on money or your earnings have stopped, don’t worry. The CARES Act has made it easier for you to use your savings to get you to the other side. And, best of all – you will be able to put more of the money back once you are on your feet again.

There are several things that are helpful for people who may be out of work or short on money now. One is that you can take loans from your 401(k), with the cap now at $100,000, up from $50,000. But be careful because that money is still taxable.

To give you another break, the CARES Act gives you three years to pay the taxes, instead of requiring you to send a check in the same year. Another benefit is that the 10 percent penalty is also waived if you're below 59-1/2 years of age. That can be very helpful.

There's also no automatic 20 percent withholding, as there might be in some situations like with the Thrift Savings Plan, or 403(b) plans, for the federal government.

Lastly, one of the things we worry about from a planning point of view is that if you're eating into your retirement money, and how that is going to affect your plan going forward? A phenomenal new provision is that you can put back what you withdraw. So, let's say you needed to take $20,000 out of a 401(k) or an IRA. In the past, you could not put that all back because you were subject to contribution limits of $6,000 or $7,000, depending on your age. Now with IRAs, you will be able to put all of that money back. That tells you the government obviously doesn't want you to ruin your retirement.

So please, email me or call me at 305-751-8855 with your questions. Every question is a good question! I will walk you through this process and make sure your money is working for you.

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