Confused About The Second Stimulus Bill? You Need to Read This

Whenever a new government rule comes into force, it’s natural to analyze how it will impact our daily lives. Take the Second Stimulus Bill, for instance. The introduction of the $600 billion pandemic relief bill, which is a part of the Consolidated Appropriations Act 2021, has created some confusion around what its impact on retirement accounts will be. And while we agree that understanding it in the first go can be a little head-spinning, we assure you, there’s nothing to worry about.

Forbes | The Consolidated Appropriations Act 2021 has created some confusion around what its impact on retirement accounts will be

We’ve combed through the law and pulled out the major things you need to know about related to retirement accounts. Hopefully, our findings will be able to clear your doubts and assist you in moving forward.

Read – Should You Pay Off Debt Or Save For Retirement?

Laid-off employees due to COVID-19

Most employers have “vesting” strategies with respect to their contribution to their employee’s retirement accounts. According to these strategies, an employee must work for an employer for a minimum stated time to be eligible to receive the full amount of their 401(k) accounts. This is aimed to retain employees for a longer period.

Now, as per this rule, if you’re terminated before you’re fully vested, you shouldn’t be entitled to your full 401(k) amount. But the rule also states that if an employer lays off over 20% of their workforce in a single year, they must treat all laid-off employees as fully vested. This would essentially mean no 401(k) loss for mass-laid-off employees.

401kLogin | As per the new bill, mass laid-off employees who weren’t vested won’t be entitled to full amount

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But as per the new bill, this rule has been eased for 2020. So if a company can show that on March 31, 2021, it has at least 80% of the workforce it had on March 31, 2020, it will be exempted from paying the full 401(k) amount to the laid-off employees.

While this may benefit employers, for laid-off employees, this isn’t good news.

Disaster early withdrawal

The second stimulus bill permits retirement account holders to take an early withdrawal of up to $100,000 from 401(k), IRA, and other retirement accounts without any penalties, if they’ve faced a non-COVID disaster. However, to be eligible for this benefit, their primary dwelling should be in an area where a disaster has been declared by the President.

Moreover, the bill indicates that the declaration of the disaster should have been done between the period starting from Jan 1, 2020, and ending on Feb 25, 2021. For example, people residing in California, which was affected by wildfire last year, are eligible for this provision. But to actually take the benefit of this bill, you need to claim it by June 25, 2021. Failure to do this will result in your withdrawal getting included in your total income over three years.

Read – Penalties for early withdrawal from a retirement plan

Adobe Stock | If you wish to withdraw from your 401(k) account, you should do it within the stated dates to avoid penalty

Summing it up

There are a lot of strings attached to 401(k) accounts in the changed global scenarios, and to ensure that you don’t end up paying more than you should, you must be aware of the various deadlines and application criteria. To have more assurance with your choices, you may seek help from financial advisors or tax professionals.