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The CARES Act is a comprehensive bill with several provisions designed to help provide financial support and assistance as we navigate through this challenging environment—including sending out stimulus checks to many Americans. Many are already receiving their payments and we want to help you figure out what this means for you. By prioritizing your needs, you can map out a plan that sets you up for success.
We recommend you consider prioritizing this payment as a way to:
1. Address your immediate expenses
If you’re struggling with current expenses, prioritize necessary expenses that you can’t obtain assistance with from public or private programs. You may have additional options to reduce current expenses, such as:
2. Add to your emergency fund and cash reserves for ongoing expenses
Emergency fund – We generally recommend you keep three to six months’ worth of expenses in cash as an emergency fund. You may want to focus more toward the longer side given today’s uncertain environment, using the payment to bolster your emergency fund for additional security later.
Cash reserves – If you’re retired, we recommend having 12 months’ worth of income needs from your portfolio in cash and up to five years in short-term fixed income to provide for your ongoing living expenses. This payment could be used to supplement these cash reserves.
3. Apply to other goals (including reducing debt)
If you have adequate emergency savings/cash and are financially stable, investing the money for retirement, education or other financial goals may be beneficial as the recent market decline could provide an opportunity.
You can also consider reducing debt, starting with high-interest, nondeductible debt, such as credit cards.
4. Apply to charitable contributions
You could consider supporting a charity or organization as charities may be struggling at this time. The CARES Act also has provisions for making charitable contributions, such as a $300 above-the-line deduction for those who don’t itemize, as well as suspending the 60% of AGI (adjusted gross income) limit for cash gifts in 2020 for those who itemize charitable contributions.
These charitable benefits from CARES do not apply to contributions to 509(a)3 supporting organizations or to donor-advised funds.
The U.S. Treasury postponed the federal tax filing deadline from April 15, 2020, to July 15, 2020. IRA and charitable contributions can also be made up until July 15. When you file can have an impact on your anticipated stimulus check.
We recommend the following when considering when to file your taxes:
1. Are you expecting to receive a refund or owe taxes?
If you are owed a refund, there may not be much of an advantage to delaying.
If you owe taxes and have more immediate expenses, this gives you additional time to pay. That said, you want to make sure you’ll still be able to pay what you owe come July 15, 2020.
2. Did you not file a 2018 tax return (and haven’t yet filed a 2019 return)?
If you didn’t file a 2018 tax return and don’t receive Social Security benefits, you may want to file a 2018 or 2019 tax return as soon as possible to ensure you receive your payment.
If you receive Social Security benefits, the IRS can use the information on your Form SSA-1099 and Form RRB-1099 to send you a payment. That said, because the IRS wouldn’t have information regarding any dependents, you wouldn’t receive any additional amount for dependents.
3. Would your 2018 tax return result in a higher stimulus payment than your 2019 tax return?
It may be beneficial to wait until closer to the deadline to file your 2019 tax return. If you have not filed a 2019 tax return, the IRS will calculate the payment based on your 2018 tax return, which could impact the amount of your stimulus check.
We're in this together. There are many other provisions within the CARES Act that may help you depending on your specific situation. We know planning for retirement may not be your first concern when facing financial difficulty. But, as your partner, we can help you navigate the above considerations and their possible impacts on your long-term goals and what steps, if any, can help provide for your current needs while keeping you on track for your goals in the future.
If you are already in retirement, we can help you prioritize these and other aspects of the CARES Act to expand or adjust your plan for achieving your financial goals.
Want to talk? Find a financial advisor near you and schedule a virtual meeting today.
These materials are for general education only, and any specific questions related to your individual circumstances should be discussed with your personal financial, tax or legal advisor, as appropriate.
Edward Jones has not independently verified and is not responsible for third-party content.