Beyond Stimulus Checks – How to Plan Your Retirement
You can’t read the news lately without hearing about the latest stimulus checks to get us through the COVID-19 Pandemic. In this video and blog post we discuss who could get them and how they can help you achieve your financial goals.
Stimulus Checks and Your Retirement Goals
We are in round 3 of stimulus checks! As a recap, round one was mailed/deposited around April in 2020. In December 2020, a second set of checks were delivered with similar criteria.
The following were excluded:
- Single filers with 2019 income over $87,000
- Joint filers with 2019 income over $150,000.
- If you were claimed as a dependent on a 2019 tax return.
So how much did people get?
- Individuals received $600
- Joint filers received $1,200
- And parents received an additional $600 for each child under the age of 17.
The current reporting indicates a third round of stimulus will be forthcoming but the criteria for who receives a check could be more limited and the amount is under debate. Even if you don’t get one, the following ideas could be applied to your tax refunds, bonus checks, or inheritances.
Spend, Save, or Pay Down Debt?
If you need the extra money to keep the lights on, pay your rent, or other vital service, clearly this is what the stimulus checks are targeted for and should be your top priority.
You might have incurred some credit card debt that is charging a high interest rate. This is the second place to use the money.
Third, if you don’t have 3-6 months of basic expenses in your credit union savings account, you should work to build up your emergency fund.
Lastly, if you have the first three taken care of, consider applying your new money to a long-term financial goal like buying a house, saving for a child’s college, or your retirement.
Ideas for Retirement
If you want to build your retirement nest egg, a good place to consider is contributing to a Roth IRA. There are contribution and income limits to consider when making a Roth contribution so check with your tax professional or ask us at Coastal Wealth Management for guidance. Also, if you qualify, you might be able to make a 2020 Roth IRA contribution up to the April 15, 2021 tax filing date.
SECURE ACT Changes for Retirement
In early 2020, Congress passed the SECURE Act that made some changes to the way we can save for retirement.
- Part-time workers can now work fewer hours to be eligible to participate in an employer sponsored retirement plan like a 401(k). You need only work 500 hours in a year (down from 1000 hours) however you must work those hours for 3 consecutive years. The Act is effectively supporting longer term, part-time employees who might be in a second job or supplementing the household income while caring for children or aging parent.
- The SECURE Act also paves the way for employers to add a lifetime annuity option to their 401(k) plan. This allows more conservative investors the option to invest in a way that helps them create a guaranteed income source in retirement.
- Older Americans who are still working into their 70’s can now contribute to an IRA. The Act recognizes that Americans are working longer and lifted the age 70.5 restriction for IRA contributions.
- There was also a change to the age at which you need to start taking distributions from your pre-tax retirement accounts, these are called your Required Minimum Distribution (RMD). Prior to the SECURE Act your first RMD was to be taken the year your turn 70.5. However, this has been pushed out to age 72 for individuals who had not already taken their first RMD.
- The SECURE Act also changed the rules for IRAs inherited by a non-spouse. If you inherit an IRA from someone who passed in 2020 or later, the beneficiary must distribute all of the IRA over the 10 years following the year of death. These distributions will likely be 100% taxable at the beneficiary’s tax rate the year the distributions occur. So, if you inherited an IRA in 2020 or after, it’s a good idea to meet with a tax professional or Coastal Financial Advisor to discuss a distribution strategy.
Ready to Go Beyond Your Stimulus Checks? Connect with us!
Connect with a CFS* Financial Advisor to schedule your no-cost retirement plan review. Whether you have received a stimulus check or not, chances are you have some financial planning moves to make in 2021. We can assess your current retirement income strategies to see if you are on track to meeting your financial goals.