CARES Act Stimulus Package Highlights
Please Read this important note about the CARES Act Stimulus package from Matthew Kunst, CFA, CFP®, CPA
Dear Clients and Friends,
I’m sure your inbox is getting overflowed with ‘COVID’ updates, so I apologize in advance, but I want to share a few items of interest regarding recent relief legislation, tax updates and some perspectives you may find helpful at this time. First, I want to say that I hope you and your family is and stays safe and healthy.
We are here for you. We will continue to plan for your well-being, manage your portfolios, and provide you with guidance through these unprecedented times. We understand the uncertainty suddenly imposed on all communities by this coronavirus and we will continue to provide you with the highest level of service during these times.
We are accessible. Although in-person meetings are temporarily on hold, the same phone numbers and email addresses you always use to reach us will continue to work as usual and you can use those channels to contact us directly at any time of the day. “Social Distancing” is the buzzword right now, but I prefer to think of our approach as ‘physical distancing’ because I believe we need the social interaction to cope with today’s uncertainties. We have computer screen sharing and video conferencing capabilities so we can still meet ‘face-to-face’ if you like.
We are here to talk with you, explain what we know, and sometimes just to provide some perspective. Everyone at our firm is committed to seeing you through these challenging times.
CARES Act Stimulus Package
As you may have heard, Congress has passed and the President has signed into law the Coronavirus Aid, Relief, and Economic Security Act. The CARES Act will provide necessary relief to America’s families and businesses as we all manage the COVID-19 health crisis and resulting economic conditions. There’s a lot packed into this new legislation. I’ve highlighted some of the major impacts from this act below:
2019 tax filing date has been extended to July, 15th 2020 (previously April, 15th)
The date for making 2019 IRA and Roth IRA contributions is also extended to the same date.
Required Minimum Distributions (RMD’s) for 2020 have been waived. This will be a huge help because 2020 RMD’s would generally be based on the account values of December 31st, 2019, which tend to be high after the bull market of the last ten years.
Stimulus checks — up to $1,200 for individuals, $2,400 for joint taxpayers and an additional $500 for each qualifying child — will be based on information from your most recent tax filings, either 2019 or 2018 if you have not yet filed this season. If you have an adjusted gross income (AGI) of up to $75,000 ($150,000 MFJ), you should be eligible for the full amount of the recovery rebate. As your AGI increases, the stimulus amount you get will go down. The stimulus check rebate completely phases out at $99,000 for single tax payers and $198,000 for joint filers with no kids. These payments will be made direct to the bank account which your last tax refund was deposited or sent via check to the last known address on file. You can follow updates on the IRS Coronavirus Tax Relief page here: https://www.irs.gov/coronavirus
Student Loan Payment Relief- the law includes temporary suspension of payments for federal student loans until September 30th, 2020. During this time, interest will not accrue. This creates a great opportunity for those with student loans to temporarily redirect those payments into an investment or retirement account and participate in the eventual market recovery, or make additional payments on higher interest debt in lieu of the student loan payments. You can find more information on the Federal Student Aid website here: https://studentaid.gov/announcements-events/coronavirus
Small business tax relief and payroll loans – The stimulus plan grants small business owners tax credits and defers payroll taxes through 2020, so they can continue paying employees. Employers will be eligible for the payroll tax credit as long as they keep workers employed amid coronavirus-related shutdowns. The stimulus plan also provides loans to business owners with 500 or fewer employees, who continue to employee and pay workers. The loans are intended to prevent employee layoffs and cover payroll costs and may be forgiven. For more information visit the Small Business Administration COVID resource page: https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources
Penalty waived for early retirement withdrawal—if you need to take money out of your retirement plan ASAP, keep in mind that the 10% early withdrawal penalty will be waived on up to $100k of retirement funds withdrawn by an individual impacted by the coronavirus. Additionally, income attributable to such distributions would be subject to tax over three years, and you may recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions. To be eligible an individual must have been impacted by the coronavirus because they:
Have been diagnosed with COVID-19;
Have a spouse or dependent who has been diagnosed with Covid-19;
Experience adverse financial consequences as a result of being quarantined, furloughed, being laid off, or having work hours reduced because of the disease;
Are unable to work because they lack childcare as a result of the disease;
Own a business that has closed or operates under reduced hours because of the disease; or
Other factors as may be determined by the IRS.
Enhancements to loans from employer-sponsored retirement plans – many employer-sponsored retirement plans, such as 401(k)s and 403(b)s, offer participants the option of taking a loan of a portion of their retirement assets. For individuals who have been impacted by the coronavirus (as described above) the maximum amount that may be borrowed has been increased from $50k to $100k. In addition, payments that would otherwise be owed on the plan loan through the end of 2020 may be delayed for up to one year.
New $300 above-the-line deduction for qualified charitable contributions – allows for a charitable deduction for those taxpayers that do not itemize deductions on their federal income tax return.
Regular unemployment compensation is increased by up to $600 per week – in addition the benefit period is extended by 13 weeks and will be available the first week of unemployment, waiving the normal one-week waiting period.
Consumer Financial Protection Bureau has advice for managing the personal financial impact of coronavirus here: https://www.consumerfinance.gov/about-us/blog/protect-yourself-financially-from-impact-of-coronavirus/
Please remain vigilant for scams related to Covid-19. Cyber actors are ramping up malicious emails and attacks during this chaotic time. Cybersecurity and Infrastructure Security Agency has tips to avoid scams here: https://www.consumerfinance.gov/about-us/blog/protect-yourself-financially-from-impact-of-coronavirus/
Navigating a Market Like No Other
The current market environment is unique in basically every way possible. We are simultaneously battling a health crisis and a financial crisis. This has caused the fastest major market decline, from peak-to-trough, in the history of the U.S. stock market. That said, we have been through severe market pullbacks before through 1987, 1991, 1994 corrections, the dot com bust of 2000-02 and the financial recession of 08-09. While defensive moves are important, it is equally important that we have strategy for reentry when favorable market conditions return. While avoiding the temptation to “time” the markets, we will rely on our discipline, research and signals to guide our and your decisions.
If you have been managing your finances on your own but don’t know what to do now with the current volatility we are experiencing, now would be a perfect time to seek professional counsel and management. Furthermore, with recent volatility in both equity and fixed income markets, these challenging times can present certain financial planning opportunities, such as refinancing mortgages, improving tax diversification through Roth Conversions, Tax-Loss Harvesting, and purchasing stock of good companies at oversold levels. So as always, if you or someone close to you could use our help to answer questions or concerns, please let us know and we’d be happy to follow up.
This May be an Opportunity
For some of you, this is an opportunity to buy as prices fall. If you have cash on the sidelines, this may be the ideal time to put it to work, albeit slowly. If you’re an investor, you’ve probably heard or read many quotes from Warren Buffett countless times. A few of his famous sayings bear repeating now.
“A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.
But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the ‘hamburgers’ they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.”
“Whether we’re talking about stocks or socks, I like buying quality merchandise when it is marked down.” “For 240 years it’s been a terrible mistake to bet against America, and now is no time to start.”
As I reflect on the last 100 years of history, there have indeed been scary times. During those times, as well as now, it’s worth recalling that ‘This too shall pass.’ It’s likely that for the time being we will be dealing with unprecedented developments and a fearful market. As you do so, I hope you will remember that cheaper stock prices are buying opportunities for those who will be net purchasers over the next several years or decades, that it doesn’t make sense to worry about those things over which you have no control. Ultimately, investing comes down to belief. Do you believe that the companies of the world are going to be worth more in the future than they are today? If you do, there’s a case for investing in them.
We Will Get Through This Together!
As we navigate this ever-changing reality over the next days and weeks, we will keep you updated on any changes or other important information. We are stronger when we come together and support one another. We will persevere through these immense challenges and will emerge with greater purpose. We are here for you and grateful to have you in our community. If there is anything we can do to help or further support you during this time, please don’t hesitate to reach out to our team, anytime of the day.
Matthew Kunst, CFA, CFP®, CPA
Wealth Manager, Opus Financial Solutions LLC
General Assistance: 331-777-5449