With the global pandemic causing record-breaking job losses and wreaking havoc on our economy, it can be tempting to withdraw large amounts of cash from your IRA to have on hand. But before you raid your IRA at any time, we encourage you to think carefully about how much you actually need.
Individual Retirement accounts are are designed to provide additional financial security as we get older, but unlike a traditional bank account, access to the money in these accounts—particularly in times of financial crisis—can come at a significant cost.
For this year, the CARES Act has eased some restrictions and penalties for qualifying individuals whose income has suffered as a result of COVID-19, like allowing taxes on IRA withdrawals to be spread over three years, but it is still recommended to exhaust other cash resources before tapping into retirement accounts for emergency funds.
Consider this: Any withdrawal from your IRA is treated as income for that year. So substantially large distribution amounts could potentially bump you into a higher tax bracket, which translates into giving up more of your hard-earned savings than you intended.
And while there are no restrictions or requirements on IRA distributions between age 60 and 70½, the more you take out, the more income tax you will pay—most likely at a higher rate than if you wait until your required minimum distributions kick in.
So before you make any additional withdrawals from your IRA, we recommend taking a moment to determine how much you actually need right now. While the idea of using your retirement account as a rainy day fund might seem attractive in the short term—particularly in uncertain times—the tax ramifications down the road can prove far more costly than riding out the storm.
Our previous posts shared information about the stimulus timeline and how to calculate the amount you can expect to receive based on your Adjusted Gross Income (AGI). This has led to people wondering…Where can I find my AGI?
The answer is simple. Your AGI is on your tax return, and here is how to find it:
If you have filed for this year, the IRS will use the number found on Line 8b of your 2019 return, as shown below.
If you have not yet filed this year, IRS will use the AGI found on Line 7 of your 2018 return.
Once you know your AGI, you can visit the IRS site to check the status and calculate your expected payment.
We have created the charts below to show you how the payments are being calculated, and to help figure out how much you should expect.
Please note that payments are not being delayed if your 2019 taxes have yet to be filed. IRS will use information from 2018 returns when necessary for non-filers and regular taxpayers alike. We encourage you to access the Get My Payment tool on the IRS site to determine your actual payment amount, as well as to provide your most up-to-date bank and/or mailing information, if necessary.
Our office will remain closed until statewide restrictions are lifted. For those of you whose returns are still in process, we are working to set up one day a week for you to sign and retrieve your documents.
If you prefer, we are more than happy to send your documents via US mail. Stay tuned for more information!
Economic impact payments from the Federal Government are arriving in bank accounts this week for some taxpayers who e-filed early and opted for direct deposit. These “stimulus checks” are separate from your regular tax refund, and are being handled entirely by IRS, so we do not have any information on individual payments for our clients.
While the $1200 per citizen and $500 per child amounts are what people have heard and are expecting, IRS has a formula for determining who gets how much. We can tell you, however, that it is our understanding the $500 per child payments only apply if the child is under 17 years of age.
Luckily, the IRS has set up online tools to check the status of your payment, and to determine if “non-filers” qualify for payment and/or need to submit an application. At the time we are sending this newsletter there is a placeholder for the “Where’s My Payment” tool on the irs.gov website, with a note indicating that it is scheduled to be available in “mid-April.” The non-filer application tool is currently active, though, and the home page includes a brief and helpful description of qualifications to see if you should submit an application. You can access both on the IRS.gov website through this link.
Tax day is one of those dates that you remember because it’s (almost) always the same, and it always seems to arrive sooner than you’d like. This year, though, it is one of the many constants that had to be changed due to the pandemic. Perhaps because the federal government and the state announced it separately, there has been some confusion about what is due when. Whatever the reason, we are here to reassure everyone that the deadline for filing both state and federal taxes this year is July 15, 2020.
We still recommend not waiting until the last minute, but the July 15th deadline gives taxpayers a grace period of three months to file this year, so there is no need to panic today. And remember: If you owe money on your taxes, you can file anytime now and still delay payment until July 15th.
With so many people in the Commonwealth facing the challenges of layoffs and lost income right now, the Massachusetts Department of Unemployment Assitance (DUA) has made available an excellent, step-by-step guide to applying for unemployment benefits.
The Massachusetts DUA has further announced that a dedicated online platform is being built for self-employed workers to to apply for unemployment benefits under the CARES Act. Those who qualify for this new benefit, called “Pandemic Unemployment Assistance (PUA)” may be eligible for retroactive compensation. Although the hope was that the platform would be active in mid-March, delays have pushed the current scheduled launch date to April 30, 2020. More information is available through the Mass DUA site here.
Breaking News: We now have a mail slot in the door to our office. Though our office officially remains closed, one or two of us periodically visit for limited timeframes to access office systems and check for items that may have been delivered to the office rather than our PO Box. If you must bring documents to our office, please make sure they are in a sealed envelope, and deposit them through our new mail slot. We will confirm receipt and let you know if we have any questions. This is a great help in assuring that we can continue to adhere to distancing and no-conact guidelines while still being flexible.
The single most accurate source for information regarding coronavirus can still be found at coronavirus.gov, the offical website with the most up-to-date information from The Center for Disease Control (CDC), The Federal Emergency management Association (FEMA), and The White House.
Additional relief for some taxpayers is included in the recently announced People First Initiative from the IRS. The initiative makes provisions for a variety of situations ranging from postponing Installment Agreement payments to compliance with Earned Income Credit verification requests. You can read more about the People First initiative here.