Covid-19 Military Money Policies to Know!

We’ve covered a number of Covid-19 related topics and policies from the stimulus check portion of the CARES act to the impact of the stop-move on lease agreements. Today’s post will cover some policies regarding your leave accrual and recent developments with the TSP designed to help those with financial impacts from the virus. It’s short and sweet, but the information is good to know!

Leave leniency

This is one policy that many of you are likely familiar with given that it’s quite popular. Have you ever lost leave due to accruing more than 60 days at the end of the fiscal year? That shouldn’t be a problem anymore from now until September 30, 2023. A new policy has allowed the accrual of up to 120 days of leave due to the Covid-19 impacts on travel. The DOD travel ban, which still extends to June 30 and will potentially be revised every 15 days, has impacted many service members’ plans to take leave. As a consequence, starting September 30, 2020, service members can carry up to 120 days of leave forward until September 30, 2023. This is particularly beneficial for those looking to ETS as they can take long leave periods to help with job searches, trips, and other leave endeavors on their way out of active duty service.

TSP Options

The CARES act has also created a loan or withdrawal program to be implemented for those with TSP balances (which should be everyone under the new blended retirement system) who are impacted by Covid-19. The TSP’s official website gave the following guidance for those that are eligible for each of these options (which should be ready by June 22, 2020):

Both the loan and withdrawal options are available to you only if you can certify that you meet one or more of the following criteria:

  • You have been diagnosed with the virus SARS–CoV–2 or with coronavirus disease 2019 (COVID–19) by a test approved by the Centers for Disease Control and Prevention.
  • Your spouse or dependent (as defined in section 152 of the Internal Revenue Code of 1986) has been diagnosed with such virus or disease by such a test.
  • You are experiencing adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury (or the Secretary’s delegate).”
Feeling the impact of Covid-19? The TSP provides financial options for those impacted by the virus.

Loan Option

The loan option enables you to borrow money to cover expenses during the Covid-19 pandemic. The current interest rate is 0.75% or the current G-fund interest rate. The following policy updates apply under the CARES act according to the TSP’s official website:

Increased maximum loan amount: The maximum loan amount is increased from $50,000 to $100,000, and the portion of your available balance you can borrow is raised from 50% to 100%. The deadline for applying for a loan with this increased maximum will be in September 2020. We will announce the exact cutoff date soon.

Temporary suspension of loan payments: You may suspend your obligation to make payments on your TSP loan or loans for 12 months, which will also extend the term of your loan by 12 months. This applies to existing loans and loans taken in the remainder of 2020. We will make a new form available for you to request this suspension. You have until December 31, 2020, to have your payments suspended.”

The CARES act provides a number of generous benefits to those service members and government employees impacted by the COVID-19 crisis.

Withdrawal option

The withdrawal option is also available for those looking to not pay interest on the money they use. Keep in mind your may still pay taxes on the withdrawals. Talk to a TSP official before making any significant decisions based on this policy. The following policies apply per the TSP’s official site:

“You may make a one-time withdrawal of up to $100,000 from a civilian or uniformed services account. For those still in federal service, the usual requirements that you be at least 59 ½ years old or certify that you meet specific financial hardship criteria are waived. Though you may request that we withhold money from your withdrawal for federal income tax, we will not automatically do that. This withdrawal will be eligible for the favorable tax treatment described here, with all of the same options and restrictions. The deadline for applying for this withdrawal will be in December 2020. We will announce the exact cutoff date soon.”

The policy applies to multiple retirement accounts as detailed in the following paragraph:

“A coronavirus-related distribution, as defined by the Internal Revenue Service (IRS), is “a distribution (withdrawal) that is made from an eligible retirement plan to a qualified individual from January 1, 2020, to December 30, 2020, up to an aggregate limit of $100,000 from all plans and IRAs.” That means $100,000 is the maximum amount across all your retirement plans combined that you can apply these tax advantages to. If you designate your withdrawal(s) as a coronavirus-related distribution when you file your taxes, the IRS will waive the 10% additional tax on early distributions.”

Taxes on the Withdrawal: The taxable income from withdrawals made by qualified individuals may be spread “ratably” over a three-year period, starting with the year in which you receive your distribution. For example, if you receive a $9,000 coronavirus-related distribution in 2020, you could report $3,000 in income on your federal income tax return for each of 2020, 2021, and 2022. This is optional; you can also choose to include all of the income in the year of the withdrawal.

Repaying the withdrawal: If you are a qualified individual, you may repay all or part of the amount of a coronavirus-related distribution to an eligible retirement plan, provided that you complete the repayment within three years after the date that you received the distribution. If you repay a coronavirus-related distribution, the distribution will be treated as though it were repaid in a direct plan-to-plan transfer so that you do not owe federal income tax on the distribution. The law allows you to repay coronavirus-related distributions to the plan from which you received it or to another eligible retirement plan.

Too much jargon in the previous paragraphs? Basically the law allows you to withdraw money from your TSP and spread the tax payments over a number of years without facing the standard penalty for doing so before the age of 59 1/2. Additionally, if qualified, you can repay the money you took out of your retirement account into the account at a later date. For example, if you withdrew $2,000 from your TSP now, you could repay distributions to your TSP at a later date. Be sure to talk to a tax professional and do your research on the TSP before making any significant decisions! $

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Categories Finance, investing, Personal Finance, taxesTags , , , , ,

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