From Retirement Now Newsletter March 18th 2021
| As of writing this it looks like the new stimulus plan in D.C., also known as the American Rescue Plan, has been passed. Lots of stuff in this package. So I want to focus on a handful of big things that are pertinent to retirees looking to plan their retirement now. There are lots of sources I’ve read from on this topic. But a really handy one that I used to summarize much of what you are about to read can be found here. Stimulus check is $1,400 The size of the stimulus check per individual is probably the part of the plan people are most interested in. And this time the stimulus is larger than the prior 2 plans, coming in at $1,400 per person. Note: This applies to dependents too, whereas the other stimulus checks received last year not only had a lower amount for children under the age of 17, but also did not count dependents older than that toward that family’s stimulus calculation. For a typical individual retiree they will receive $1,400 and a married retired couple filing jointly will get $2,800. If you have kids and grandkids, their households may qualify for even more. A couple with 3 kids could receive $7,000 ($1,400 x 5). This is a big benefit for families with lots of kids like me. We have 5. But not all big families, or even empty nesters, will qualify. There are income phaseouts for qualifying for this stimulus. If adjusted gross income is below $75k for singles ($150k for married filing jointly) they still qualify. Then the benefit starts to phaseout until it reaches $80K for singles ($160k for married) before completely being gone. The IRS will base eligibility for the stimulus on the latest tax return they have on file for you. So if your income in 2019 qualified you for this, but let’s say your income in 2020 was too high to qualify, then you may want to consider holding off on filing your 2020 tax return (not beyond the deadline of April 15th though) until they mail out the stimulus checks. Important note: What if your 2019 income disqualifies you (i.e. it was too high) and your 2020 income would qualify you (it was withing the income thresholds) BUT you hadn’t filed your 2020 return and the IRS only looked at your 2019 earnings? The bill has a method to capture this and give people the refund they qualify for. If stimulus qualification is based on your 2019 tax return (because you haven’t yet filed your 2020 tax return), you may still get the rebate at a later date. Once you file your 2020 tax return, if it shows adjusted gross income below the phaseout thresholds ($75k – $80k for individuals and $150k – $160k for married filing jointly) you may qualify. The IRS will determine who qualifies 90 days after the filing deadline OR by September 1st 2021, which ever is earlier. And if a person still doesn’t qualify based on 2019 or 2020 income tax return, they have one more opportunity to qualify. Here’s what the above linked article says: “If an individual’s 2021 AGI is lower than the (2019 and/or 2020) AGI(s) used to calculate the 2021 Recovery Rebate paid to them in advance, and that income is low enough to produce a larger 2021 Recovery Rebate credit, the credit (or remaining amount not already received) will be applied on their 2021 income tax return.” This may be something to consider for many retirees who do Roth conversions. Perhaps they did a Roth conversion in 2020 which caused their income to break through the stimulus threshold, thus disqualifying them from receiving the stimulus check. They may have a second chance to qualify for the stimulus check by keeping their 2021 income lower, perhaps even reducing or eliminating a Roth conversion for that year. Roth conversion may still make sense in 2021 for those people, but it’s worth considering if it would cause them to be disqualified from the stimulus… especially if they were on the border line of income qualification, like the $150k mark for joint filers. Child Tax Credit Another big change the American Rescue Plan includes is an increased Child Tax Credit for the year 2021 only. If you’re receiving this email you’re probably in retirement or near it and may not have any children age 17 and under. But if you have any adult children that have young kids they should be pleased to hear this. The child tax credit is increasing in 2021 from $2,000 to $3,000. And if the child is under 6 years old as of December 31st, 2021 the credit is increased to $3,600 per qualifying child. This is a pretty big deal considering that in 2017, just before the Tax Cuts and Jobs Act, the child tax credit was only $1,000. The TCJA doubled that to $2,000 in 2018. And now it’s temporarily being increased to $3,000 (or $3,600 for under age 6) for the year 2021 alone. This enhancement begins phasing out for single filers with income over $75k or married filing jointly with income over $150k. But even then, the existing $2,000 child tax credit will remain for single filers that earn $200k or less and married filing jointly that earn $400k or less. It’s also worth noting that the American Rescue Plan has increased the age of eligible children from 16 and under (i.e. younger than 17) to 17 and under (i.e. younger than 18). But this only applies for the year 2021 in the legislation. Health Insurance Relief Another benefit that I haven’t heard much talk about relates to health insurance relief. This is especially important for retirees that have not yet reached Medicare age of 65. If you were involuntarily terminated from your job, the plan allows you to continue COBRA insurance for $0 from April 2021 through September 2021. “Premiums for such coverage are to be paid by the taxpayer’s former employer and will be reimbursable for the employer in the form of a refundable payroll tax credit.” Conclusion Very important information to stay on top of here for retirees and those planning for retirement soon. And as mentioned above, in some circumstances it could even impact the decision to make a Roth conversion in 2021, assuming your 2019 and 2020 tax returns disqualified you from the stimulus. I’m not seeing a lot of people (or any) talk about this particular application of what to do differently going forward in light of the American Rescue Plan. Regards, Chris Hammond P.S. 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