By James Owen<\/p>\n\n\n\n
Building wealth doesn\u2019t happen overnight. <\/p>\n\n\n\n
But over the next few days, you\u2019ll likely have to make some\ndecisions that could help you build long-term wealth. <\/p>\n\n\n\n
In late March, Congress passed the Coronavirus Aid, Relief,\nand Economic Security (CARES) Act. This sweeping piece of legislation does many\nthings, but this blog will focus on three aspects: the $1,200 financial\nstimulus check, the provision that allows a withdrawal of up to $100,000 from\nyour retirement account, and changes to your federal student loan interest and\npayments. <\/p>\n\n\n\n
Before we start, I have two caveats: First, Southern focuses\non a long-term, generational approach to building wealth. It\u2019s important to\nconsider your unique needs during this time in consultation with a financial\nadvisor. Also, the following assumes you\nhave enough to meet your basic budget needs like food and shelter, which should\nof course, be a priority. <\/p>\n\n\n\n
What to Expect: If your adjusted gross income is $75,000 or less and you\u2019re single, you should receive $1,200. If you make between $75,001 and $99,000, you will receive less, and those making over $99,000 will not get anything. The income limit is higher if you\u2019re married and filed a joint tax return or if you filed as head of household. Each child under 17 will receive $500. Here\u2019s a helpful explainer<\/a> on the amount you\u2019ll get. <\/p>\n\n\n\n Your income is based off the 2018 tax return if you have not yet filed your 2019 return. The IRS has created a landing page<\/a> where you can update your direct deposit information. The same page also has a “Get My Payment” tool to track when you should receive the payment. <\/p>\n\n\n\n What to Think About: It might be helpful to think about this\ncheck like a bonus tax refund. For many people, their tax refund is the largest\nsingle influx of cash that they might receive, and it pays to have a plan on\nwhat to do with it. <\/p>\n\n\n\n Indeed, treating it like your tax refund might be a good\nstrategy. It could be used it to pay off high interest credit card debt, send a\nportion of it to savings, or to create an emergency fund. Since we know that 40\npercent of Americans don\u2019t have $400 in savings, saving at least $400 could\nhelp you weather the storm either to buy groceries in a few weeks or when you\nmight need new tires in a year. <\/p>\n\n\n\n As my grandfather said, it\u2019s better to have it and not need\nit than to need it and not have it. <\/p>\n\n\n\n What to Expect: Depending on your situation, the CARES act might\npermit you to withdraw up to $100,000 from your 401(k) without a penalty for a\ncoronavirus-related distribution (CRD). For example, you might qualify if you\nhave been laid off, are unable to work because of lack of childcare, or had\nyour hours reduced. Importantly, the\nCARES act only creates a CRD as an option; your employer still has to opt in to\nthis benefit before you can access it. If\nyou have questions about this, you should contact your human resources team or\nyour 401(k) servicer. The benefit to this approach is that taxes are not due on\nthe withdrawals for three years, so if you repay the balance quickly, it should\nbe penalty-free. <\/p>\n\n\n\n What to Think About: While withdrawing early is an option, many\nhave warned about such a move<\/a>, citing other resources to explore first,\nincluding home equity lines of credit or balance transfer cards.<\/p>\n\n\n\n While it may be tempting to take out money now to get you\nthrough the crisis, it helps to understand this with a long-term perspective,\nand the impact of compound interest and market returns. <\/p>\n\n\n\n For instance, let\u2019s assume you\u2019re 50 years old and plan to retire at 70. You have $100,000 in your 401k that gets an average 7 percent return each year. Three years from now, that $100,000 would be worth $122,504. And if you continued to leave it there for 20 years until you retire, that $100,000 would be worth nearly $387,000.[1]<\/p>\n\n\n\n Before you make the decision to withdraw from your\nretirement, make sure to do a cost-benefit calculation to make sure it makes\nsense for this year, next year, and 20 years down the road. <\/p>\n\n\n\n What to Expect: The CARES act also provides some student\nloan relief. While the federal government won\u2019t pay your loan off, it is deferring\nthe interest on any federal student loans you may have and automatically\nplacing them into a six-month forbearance, which means you don\u2019t have to make\npayments until October 2020. This is only for loans owned by the US Department\nof Education (ED), including those through loan servicers like Great Lakes,\nNelnet, or Navient. This does not include private loan refinancers. Be aware\nthat companies who service loans owned by ED also service private loans. If\nyou\u2019re unsure about what type of loan you have, contact your servicer. You can\nfind more coronavirus-specific information on the Studentaid.gov\nwebsite<\/a>. <\/p>\n\n\n\n What to Think About: Through the end of September, you\nshould not be charged interest or have to make payments. So you might have an\nextra few hundred dollars in your budget for the next few months. You can take\nadvantage of this reprieve to pay down your student loan principal, but it also\nprovides an opportunity to eliminate high-interest debt like credit card debt. Your\nstudent loans are probably less than 6 percent interest. Your credit cards\ncould be as high as 26 percent. Paying off the higher interest option will save\nyou money in the long run. Car loans could be another option to explore. <\/p>\n\n\n\n Whatever you do, having a long-term view, running some\nnumbers, and thinking through the implications before you act will help you\nmake the best financial decision. The government is giving you three choices \u2013\nyou don\u2019t have to get every choice right, but making informed decisions could\nbe your first step in building wealth. If you have questions or need specific guidance,\ncontact a U.S.\nDepartment of Housing and Urban Development-certified housing and credit\ncounselor<\/a> at organizations like Southern Bancorp<\/a>.\n [1] Assumes a 7 percent annual return for 20 years.<\/p>\n","protected":false},"excerpt":{"rendered":" By James Owen Building wealth doesn\u2019t happen overnight. But over the next few days, you\u2019ll likely have to make some decisions that could help you build long-term wealth. In late March, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This sweeping piece of legislation does many things, but this blog will focus […]<\/p>\n","protected":false},"author":22,"featured_media":19989,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[15],"tags":[89,88,83,84,85,102,79,87,86,82],"class_list":["post-19987","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-public-policy","tag-1200-check","tag-401k","tag-cares-act","tag-congress","tag-coronavirus","tag-public-assistance-asset-limit-reform","tag-southern-bancorp","tag-student-loans","tag-wealth","tag-wealth-building"],"acf":[],"_links":{"self":[{"href":"https:\/\/southernpartners.org\/es\/wp-json\/wp\/v2\/posts\/19987","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/southernpartners.org\/es\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/southernpartners.org\/es\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/southernpartners.org\/es\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/southernpartners.org\/es\/wp-json\/wp\/v2\/comments?post=19987"}],"version-history":[{"count":6,"href":"https:\/\/southernpartners.org\/es\/wp-json\/wp\/v2\/posts\/19987\/revisions"}],"predecessor-version":[{"id":19999,"href":"https:\/\/southernpartners.org\/es\/wp-json\/wp\/v2\/posts\/19987\/revisions\/19999"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/southernpartners.org\/es\/wp-json\/wp\/v2\/media\/19989"}],"wp:attachment":[{"href":"https:\/\/southernpartners.org\/es\/wp-json\/wp\/v2\/media?parent=19987"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/southernpartners.org\/es\/wp-json\/wp\/v2\/categories?post=19987"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/southernpartners.org\/es\/wp-json\/wp\/v2\/tags?post=19987"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}401k Withdrawal<\/h2>\n\n\n\n
Student Loan Interest<\/h2>\n\n\n\n
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