The $2 Trillion Stimulus Bill and Your Retirement Fund
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What does the $2 trillion coronavirus rescue package include for households and retirees?
Money Briefing for Monday, March 30th. I'm J.R. Whelan for The Wall Street Journal. Last week, President Trump signed a $2 trillion coronavirus rescue package. More than $300 billion of that will be direct aid to millions of households. On Friday, we talked about who qualifies for the stimulus payments. But there are also a lot of other provisions in the bill to help folks financially who may have lost their jobs or can't pay their bills or who need to access their savings because of the pandemic. All this week, we'll be taking a look at how the stimulus package does that, starting with the changes in how people can dip into what could be their biggest savings fund, their retirement.
So it gives people a lot of flexibility who might need access to some of that cash from a 401k. There's also provisions in the bill for loans.
Wall Street Journal retirement reporter Ann Tergesen will explain how that will work and how experts are advising those who want to leave their nest egg alone, coming up after the break.
Getting money into the hands of consumers impacted by the coronavirus pandemic was a major hallmark of the $2 trillion stimulus bill. And there are specific provisions for retirees and those saving for retirement. Wall Street Journal retirement reporter Ann Tergesen is with us to discuss. So Ann, how does the bill benefit retirees?
How does the bill suspend required minimum distributions (RMDs) for 2020?
The bill benefits retirees by suspending required minimum distributions for 2020. So this means that, you know, typically when you turn either 70 and a half or 72, it just depends on when you were born as to what your required starting date is. But once you hit those ages, you're required to start taking money out of your IRAs, your tax deferred IRAs and 401ks. And there's a sort of a formula for doing that. It depends on your life expectancy. But Every year, people who are starting at that age or older have to take out a required minimum from these accounts and they have to pay taxes on them. But for 2020, this stimulus package actually suspends those required distributions for retirees. And the benefit of that is that, you know, if you don't have to take out as much money or even any money, then it gives your your
portfolio more time to sort of hopefully benefit from a hopeful rebound, assuming we have one.
Now, for people who are not retirees who may need to draw cash from their retirement accounts, what kind of a break do they get?
So people who have 401ks or IRAs, there's something called hardship distributions that they can take. I mean, from an IRA, I don't know that it actually has that formal name, but from a 401k, it's called a hardship distribution. They can take out up to $100,000 and the federal government is waiving what normally would be a 10% penalty that would apply on end money taken out. if you're younger than 59 and a half. So just to be clear, you should take out what you need for the hardship, not just automatically take out $100,000, but you can take out up to that amount. You're gonna have to pay income taxes on the distribution. This bill also allows you to spread that income tax bill out over three years.
instead of paying it in the first year. And it also gives you the chance to recontribute the money and not pay the taxes if you're able to do so over the course of three years.
What relief does the bill provide for non-retirees needing to withdraw from 401(k)s and IRAs?
So it gives people a lot of flexibility who might need access to some of that cash from a 401k. There's also provisions in the bill for loans. In 401k plans, most plans permit participants to take loans against their balances. This bill doubles the amount that you can take from what are the normal limits So it's up to $100,000 or the actual full balance of their 401k, whichever one is lower. Whereas in the past, it was up to $50,000 or 50%. And, you know, gives you the chance to repay that money. Usually the terms of these loans are about five years.
Now you mentioned hardship withdrawals. What sorts of things fall into that category?
Things like medical expenses or, you know, if you're going to be evicted, you can usually get access for those reasons and some others.
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Chapters
6 chapters
1
What does the $2 trillion coronavirus rescue package include for households and retirees?
0:05–1:30
2
How does the bill suspend required minimum distributions (RMDs) for 2020?
1:30–3:30
3
What relief does the bill provide for non-retirees needing to withdraw from 401(k)s and IRAs?
3:30–4:50
4
How do expanded 401(k) loan limits and repayment terms change under the stimulus?
4:50–5:50
5
Who qualifies for coronavirus-related hardship distributions and what documentation is required?
5:50–6:26
6
What do experts recommend if you can afford to leave your retirement savings untouched now?
6:26–6:43
Speakers
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