Flexibility has been given here in these cases to be smart and prudent about these rules and take advantage of them where it makes sense. And we're not saying to do this, I'll just do it automatically. It really requires a deep dive into your personal financial situation and the sleep at night factor that I always like to talk about and what makes sense for each family. So we're not saying just go out and do it because of uncertainty.
It really requires some thinking about the whole financial plan. Welcome to Keen on Retirement, a show dedicated to helping you thrive before and during your retirement years. If you are looking to grow and protect your wealth and want to make the second half of your life the best half, then listen in as well advisor Bill Keen and his host. So work through the key issues that you need to know in a lively and candid way.
Hello everybody and welcome back to Keen on Retirement. I'm your co-host Steve Sandesky. And with me is Bill Keen and Matt Wilson. Gentlemen, how are you today?
We're hanging in there Steve. How are you doing up in your neck of the woods? Yeah, we're doing all right. We're doing all right.
And you know things are starting to move a little bit here with the coronavirus situation. Things are slowly starting to open up. How are things down there in the Kansas City area? Well, things are opening here in Kansas City.
We're starting to see restaurants open in limited capacities and other things as well. So I think that folks are starting to send some light at the end of the tunnel for sure. Well, that's good. All right.
Well, we're going to stick a little bit with our conversation here about the coronavirus. I know we've done a few episodes on that. We've done some blog posts on it as well, but this is certainly an extremely important topic that is affecting all of us. So we're going to continue to talk about some things related to that today.
So a couple main things we're going to focus on today. One is we're just going to do a little bit of a recap on what's happening in the economy. We've got some important economic numbers that came out last week that we'll briefly talk about. And then we're also going to talk about the Cares Act and in particular one of the areas that relates to what they call coronavirus related relief for retirement plans and IRAs.
And also talk about folks who may have lost their job in this and what are some of the options available to you when it comes to your retirement plans and some options there. So why don't we start here and talk about some of the economic numbers that came out here recently. The big story last week and over the weekend was definitely the jobs market. There were over 33 million unemployment claims filed since coronavirus and COVID-19 showed up.
And last week we got the announcement that the unemployment rate in the United States is 14.7%. So pretty sobering news. Now, I would say not necessarily surprising because we've been talking about this and tracking this, the unemployment claims and whatnot. But just to see that level of unemployment and see where that numbers at is something that we don't like to see.
And we hope a lot of those are temporary. That's right. I mean, we're seeing data here that does indicate that a lot of people are on temporary leave of absence. That's what they're indicating.
So you hope that that is the case, especially now that we're getting to the point where economies, local counties, states are opening back up and we'll see how that brings employment back up here across the US. Something interesting. My daughter who lives in Florida works in the hospitality industry went to Central Florida for her degree, event management and hospitality and works in that field. So of course that was one of the fields that's getting hit the hardest and she was for a load about six weeks ago.
And you probably haven't been following the Florida unemployment debacle, but her initial claim was denied after about a month. The computer system had gone down. It had just been overwhelmed and six weeks in, she's now been approved, but still hasn't received anything from that. So it's highly likely that she will be back to work before she receives any of the unemployment.
Interesting how the system's been overwhelmed like that. She's doing well in her life. She's not under dire stress there. But just imagine there's many folks that are experiencing this, maybe much differently than she is that are going through something very similar.
Maybe in many states, not to pick on Florida, just so happened to be something I was pretty intimately aware of because of her. Now if she does eventually get approved for it, would she get retroactive pay for when she originally filed? That is my understanding, Steve. Okay.
Well, that's good. That would happen. But imagine folks that weren't able to wait six weeks or eight weeks or something of that nature. Talk about massive levels of stress happening.
And you mentioned in your opening what we'd be talking about today and we are beginning to now sit down with folks that are experiencing coronavirus related furloughs. I think that's why it's going to be good to hit on some of the things, some of the checklist items that we're going through with those folks today. And I think one of the other things I want to touch on related to this is we look at the economy and what's happening there. And Matt, you just talked about the headline number there with the unemployment rate.
Yeah, when you look at the financial markets, if you look at the stock market, it's come back very strongly. So how do you guys describe maybe a disconnect? Some people would think there's a disconnect between what's going on in the economy and what's going on in the financial markets? It is interesting.
You look at the major indices that we use to track the market. And some of them definitely look like nothing's even happening. I mean, you kind of look at the big tech index and for the year, it's positive, which is just almost going to blows your mind to think the fact that a financial market is positive for the year. But there's other indices that aren't doing as well.
They don't get as much maybe of the headlines the layperson would see and that is some of the small cap and mid cap stocks. I mean, they're still struggling. So there are areas of the market that definitely haven't recovered. But that is, I think surprising to some people now, this is a little bit in the weeds, but those big tech companies are actually a big piece of several of the indices.
So that is maybe skewing the data a little bit because some of the tech companies are performing very well. Overall, let's just say avoid that and the financial markets still don't seem to be doing that bad. And part of it is what Congress has done with the CARES Act and also the extended unemployment benefits that they've offered. And then we have the Federal Reserve on their side of things that have really done a whole lot to shore up the financial markets and provide facilities to provide liquidity.
And they did that very quickly. So I think that is a big reason why the financial markets have recovered so much of the loss that was initially experienced in February and March. Each week that unemployment claims have been announced. There has been Thursdays.
The market has been up pretty substantially on each of those days. And not to draw some correlation there. Maybe there is one other than the fact that participants in the market were expecting those types of numbers to be released. And it was old news already at that point.
But to your point, Stephen Matt, confusing to the lay person that's watching the headlines and also then watching what the financial markets are doing. It seems to be a disconnect to your point. It does. And one thing with those unemployment numbers, well, they have been very large and surprising.
They have been getting smaller and smaller each announcement too. So the market is kind of looking past this and thinking, OK, well, Congress and the Fed have done things to really provide relief and put the items in place to provide well functioning markets. So if we can get through this, essentially this event driven recession with the COVID crisis and the shutdown, where do we see things towards the end of this year and then going into 2020? And that's really what the market is looking at is how do we get past all this, not necessarily the level that we're at currently?
Yeah, and I think another interesting conversation that's going to be happening in Congress is what about the deficits? Now, we don't have to get into that today. But I think we should, you know, that would be a fun podcast to do at some point down the road is with all of the support that the government has put into this, the multi trillion dollar deficits that we're looking at this year. That's going to be an interesting conversation.
And we're starting to hear some of that from Congress that they're starting to think about that. The good news is interest rates are still very low. So the interest costs on these large deficits are not that bad relative to how much money is being spent so far. But yeah, that's that's potentially a podcast episode down the road.
Why don't we kick that down the road 10 years? Hey, let's just do what? Let's just do the rolling 10 years. Yeah, exactly.
All right. So Bill, hey, one other thing I want to touch on here before we go on to the next topic is I know you were asked to participate in a group here that's meeting at the request of the Department of Labor. And it was a group of people that are getting together here to talk about how to reopen the country. So it's also a bit about what that was about.
Yeah, I was honored to receive a call and invitation to participate in the DOL's opening America's workplace again, National Online Dialogue and they wanted to reach out to small businesses. So I was one of 12 participants in a zoom call with a representative from the Small Business Administration and we're asked questions and we're discussing things like reopening businesses, commuting safely, working safely, accommodating members of vulnerable populations, supporting America's families, and also really looking at regulatory burdens and maybe reducing some of those with getting businesses comfortable with opening up safely. Considering potential liability issues from even team members, employees, businesses like ours, we have regularly see clients in our place of business. And there was some very, very interesting discussion from all parties and really felt nice to at least think.
And I do believe that we had some sort of a voice that would be taken back up to the DOL and the representative from the Small Business Association that was leaning the call didn't say that this information would get back to the President and as they decide on how to open our country back up and refine plans on everything across the board. We talked about things from what kind of PPE that everyone would be required to wear all the way to if you rent space from your landlord, the air filtration systems even is a hot button right now as they look through how air is circulated through businesses and these big buildings and so forth. So a lot of interesting things that we were able to talk about. And again, like I said, it was an honor to be able to be a part of that and have maybe some small voice.
Well, congratulations. And why don't we jump into the next segment here that we want to talk about, which is, and you touched on this earlier where you mentioned that you're starting to see folks now that have been furloughed or permanently lost their job, which is extremely unfortunate. So let's talk a little bit about what should we do if you are furloughed, if you do lose your job, what are some of the options that you can be talking to them about? If you've been laid off, I mean, the very first thing is to get a plan together and, you know, I'm talking around just some broad basic concepts.
These aren't anything different than we would talk about with someone who's even thinking about retirement, but, you know, the whole layoff situation is front and center right now. And, you know, very first thing, of course, is assess your financial situation, you'll figure out what your liquid assets are outside of retirement accounts are. Do you have that emergency reserve in place that can sustain your lifestyle? What about your health insurance options?
I mean, these are all significant items that you need to get some clarity on, especially if you're worried about that happening, or, you know, if you're facing that right now. You know, we did a podcast probably three months ago or so, I'd have to go back and look. Do you recall 55% was a number that we saw quoted in an article of folks will end up retiring sooner than they expected? And this was maybe it was six months ago.
I'm not sure exactly, but we talked about the reasons you are a loved one becomes ill. We talked about a layoff or a downsizing. We didn't talk about a pandemic. We weren't thinking about that, but we were kind of out in front of this six months ago unknowingly.
So a lot of those things applied. I think differently now, though, is some of these things related specifically to coronavirus. Yeah, and you also, I mean, one of the first things people should do is look at unemployment. If you don't have a severance package as part of your layoff plan, you know, unemployment has been extended in additional $600 per week through July 31.
So, and that's on top of the benefits that already exists. So it's nearly $1,000 a week for individuals here. Think about your budget as well and make sure you factor in your health insurance into that, whether you have Cobra that you're going to extend, or if you're going to look at the exchanges. The exchanges also as part of COVID-19 and the situation have come up with some special enrollment periods.
And so that allows individuals and families to get on the exchanges or even look at the plan that they have if they're impacted by coronavirus and have a medical need or have an issue with their employment that would necessitate them getting on a healthcare.gov plan. There is a website for folks to refer to, healthcare.gov forward slash coronavirus that talks about a lot of these scenarios that may have come up. If you've lost your job or experienced a reduction in force or hours due to COVID-19, there's a lot of different scenarios on that website with questions and answers. There's some relief being provided if you can't make your premium payments and other things as well.
Probably a lot of things folks haven't thought about but may need to. So that would be definitely a resource to review if this affects you or a loved one. And some folks are at the age where Social Security is an option as well. So another item to consider as you evaluate your plan.
But then lastly, we've been getting a lot of questions about this. And it was the coronavirus related distributions. CRD. Yeah, we shortened a CRD and it really is part of the CARES Act that was passed calls for some relief on distributions from retirement plans specifically.
And in summary, essentially the coronavirus related distribution is up to $100,000 that you can take out through 2020. So anytime throughout the year, and then you have a lot of different options on when it comes to paying it back and recognizing the income, but they have to be taken in 2020. And it's up to $100,000. It doesn't matter if it comes out of an IRA for part of it.
And then part of it comes out of a 401K plan, which is $100,000 limit for an individual. Now, when they originally came out with the CARES Act, I know we were talking about this because they had some vague terms because who qualifies for this? So to qualify for a CRD, you have to be yourself diagnosed with COVID-19 by a test approved by the CDC or your spouse or dependent, also diagnosed with COVID-19. So that's one of them.
You don't have to have all of these. But in addition to that, you also can take a CRD if you've been quarantined, furloughed, laid off, or having your work hours reduced, or you're unable to work due to lack of childcare, or a business owner who's had a close or reduced hours of their business. That's all related to financial consequences related to coronavirus. So not necessarily available for every person.
We thought that at first that maybe just anyone could qualify. Now, how they would be able to go back and look at that, it's going to be interesting. I'm probably just going to be good faith. It's always good to see more clarity than less.
So we appreciate that and probably more to come. And in terms of being affected, would it also include people who might be business owners that have lost revenue. They're still open for business, but the revenue is down, so they have a financial consequence. Would that qualify?
That does. So probably more your W2 employee who really had no impact by this because of the role they're in. And maybe it's an individual who's not married, so they don't have any children in that spouse, so they were able to work remotely and not have any adverse financial consequences. That may not qualify for this.
And just because you qualify, you have to have access to your retirement funds to be able to utilize this. So that's another hurdle that people have to pass. So first and foremost, if you have an IRA, you could utilize a CRD out of your IRA and subject it to that, which is fine. But if you have a 401k or 403b, not all of those qualify to be able to take a coronavirus-related distribution.
So I think that's an important clarification. And some companies, we know of some that have not participated in this. Good to check with your employer to make sure if this affects you. Not all plans allow what they call hardship distributions or in-service distributions.
Those are things that a 401k plan or a 4-3b plan can allow their employees to do. Well, if your company did not opt into one of those options, this could have been years ago when they set it up. Well, they had the ability to amend the plan with the Coronavirus and the CARES Act to then allow all that. But they may have opted out of that.
If they don't provide those options, then you're stuck. Of course, if you've been furloughed or laid off, you're forced to move money out of that plan into an IRA to access it, aren't you? Well, a former employee can roll that to an IRA. Sure.
Should be able to, assuming there's no restrictions on company stock or things like that. That would then allow them to then take it from the IRA. But if you're an employed person inside a company that doesn't allow that, that is a restriction. So if you are thinking about this, definitely something to bring up with your plan administrator.
But you can absolutely still be affected and qualify, but still be employed. That's where all your assets in your account about luck with this one. Because they said if you got diagnosed or a spouse got diagnosed and you had childcare expenses related to it, so there's other reasons besides just losing your job or being furloughed to take these distributions out. Let's say we do qualify and we can take a distribution out.
Well, how does that, how do we report it? Well, right now the IRS said there's not going to be any special forms when it comes to the distribution. So if you're going to get a traditional 1099 R that just shows the gross amount of the distribution. But when you actually report it on your tax return, there's going to be a couple of different forms depending on the situation.
So if you're under age 59 and a half, so they've allowed that as part of the CARES Act and the CRDs, they say you can take a distribution, you qualify, avoid the 10% early withdrawal penalty. You still pay income tax, but you avoid the penalty. There's a form 5329, which is where you report that on. So if you're over 59 and a half, then you don't have to worry about that 10% early distribution penalty, but in this situation, there's a form 8915, which is going to be used to report the kind of coronavirus related distribution, because there are some benefits to these if you take them in a qualified form.
As I already mentioned, you're exempt from the 10% early distribution penalty, but the other item, which we've talked about before, the distribution can be spread over three years. That's an important piece to this. You may have been laid off or furloughed and you need the income and cash flow now and you're uncertain about the future. So if you take out that $100,000 distribution, you will only report one third of it as income in 2020, another third of it as income in 2021, and then the rest of it as income in 2022.
Or the only other option is to just take it all in one year. So you have that option, you could say, take out my distribution and I want to claim it all this year in 2020 because maybe your income is lower and you don't want to have future tax liability because you think you'll get your business back up and running or get a job back or things like that. So you're only two options. You either expense at all or show the income all in this year in 2020 or you're able to spread it out equally over the next three years.
So Matt, if I decide I want to spread it equally over three years, does that mean if I take out $100,000 now, could I spend all $100,000 in 2020 but not show it as income but one third this year, one third the next year and one third the next year? Is that what you're saying? That's correct. You have the income today, but then the tax liability is spread out over this year in the next two years after that.
But also you could pay it back. So you have up to three years to repay the distribution, which is an interesting aspect of this issue because most people are familiar with if you've done this before, what they call 60-day rollovers. You can take money out of an IRA, you can put it back within 60 days like nothing happened. Well, essentially now they're giving you a three-year rule over option.
Again, you have to qualify, meet those rules, but the distribution that you take out, you can expense it over three years or show the income over three years, but then also in that third year, you could pay it all back. And get your tax money back, I would assume that you have paid, correct? You would. Now, what you will have to do is amend the return.
So you got to remember that step to it because you can put the money back inside your IRA or your 401k assuming they allow it. Not all 401k is allowed contributions, so you might have to open up an IRA and put the money back in. But if you put it back in at the end of the third year, sometime during the third year, now, of course, you could pay it back sooner. You don't have to wait three years to pay it back, but you can pay it back in that third year.
Then you would go back and you would amend your 2020 return and say, okay, I didn't take that income anymore. And so they would take that out. Then you have 2021, or you could amend that, also get that income back. And then that third year, you may not have to amend the return because you're putting the money back and you won't have the income that you have to show anymore.
So Matt, what it sounds like I hear you saying as well is if someone did qualify for this distribution and they took the distribution and they didn't actually need all that money right away, they could pay it back again. Like you said, within three years, and even though they may have to pay some tax on it, they could get the tax back. So in fact, they could have essentially an interest free loan for maybe up to three years. That's correct.
You have access to these retirement funds that traditionally you wouldn't have access to until you actually retired and needed an income stream for them to get you by in a financial situation that you might be facing right now. You say with no interest, of course, you would have paid taxes over those one, two, three years, which would be money out of pocket that yes, you could, I guess, claw back when you refiled like Matt mentioned earlier, but technically you're right, Steve, on that ability to do that. We had someone recently who just because of the uncertainty of this year had been laid off and decided to take advantage of this and actually was considering a small mortgage on the house, a little bit of a car loan, not much less than $40,000 just felt like paying that off and reducing their monthly way to help them sleep at night, which I was supportive of, and understanding that this is something that you pick up a new job, you're in good shape, you can pay it back. But if you took advantage of this now, you have the option to do that.
And in that particular case, somebody was taking out a partial distribution understanding that by the end of the year, they could go ahead and take out the full 100. If we get out to the end of the year, as life happens, and make a determination on taking out the rest of 200. So flexibility has been given here in these cases to be smart and prudent about these rules and take advantage of them where it makes sense. And we're not saying to do this, I'll just do it automatically.
It really requires a deep dive into your personal financial situation and the sleep at night factor that I always like to talk about and what makes sense for each family. So we're not saying just go out and do it because of uncertainty, it really requires some thinking about the whole financial plan. And of course, if someone's married or has a partner, both partners on the same page as well. You know, this just points out how important it is to have good financial advice.
I mean, this stuff gets pretty complicated. When you look at all the new rules and programs that the government has come out with here in the past couple months, there are so many opportunities for folks that are getting hurt by the situation to utilize. But sometimes it can be very, very difficult to try and sort through what is available. But when you've got really solid expert advice, like you guys offer to really sort through this stuff and what we're trying to do here on the podcast, I think it's just so important.
So I just appreciate you guys being able to share this kind of information with the wide audience here. So is there anything else here related to this CARES Act related to this topic here that we're talking about that we should go into? The last piece to this, and there still might be legislation that changes this before the end of the year, but they removed the required minimum distribution for 2020. But they didn't do that until they passed the CARES Act.
So folks that took it early in the year may not have been able to pay it back. So what they essentially said is, okay, we're going to get rid of the requirement of distribution. And if you happen to have distributed those funds within the last 60 days, whenever they passed this, you have this window, a very limited window, you can put the money back. Well, if you took a distribution in really the first month of the year, you didn't have that window anymore.
And so you can use these CRD provisions to actually put back that requirement of distribution. So that's a little nuance with the tax code, especially this year, because they don't have requirement of distributions anymore. And you can utilize that payback provision over the next three years, because any distribution from an IRA in 2020, if you qualify, it's as of January 1. So prior to COVID-19 really being an impact here in the US, they're just retroacting it to January 1.
So if you took an RMD and you qualify, you do have that option to put it back under the CRD provision. You got all that Steve? I do. I just think and this sounds like job security for tax accountants.
In my opinion, there's no way someone could keep track of all this, especially in emotional time that we're going through, many different reasons this is an emotional time, but especially if someone down on top of everything else has been in a position where they've lost a job. So we're honored to be able to try to bring some clarity to these topics as things are being rolled out and clarity has come. Yeah, it's tough out there. I mean, there's a lot of people that are hurting from this.
And again, I'm just appreciative that you guys are able to bring some clarity and expertise to the situation and be able to help all the people that you are able to help, both people that are clients or the firm. And then also people that may not be clients, but are able to listen to the podcast or listen to the webinars that you're doing or read the blog posts that you're putting out there. So really educating a lot of folks on what's happening here. So why don't we go ahead and wrap it there.
And again, thank you guys. If you listening here, if you want to learn more, you can visit keenonretirement.com. That's K-E-E-N on retirement.com. We'll have the show notes there and we'll have all the previous episodes that we've done as well as the blog posts on this topic and many other.
So guys, thank you and we'll look forward to the next episode of the podcast. Thank you Steve. Thank you, Matt. Thank you.
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