When planning a newsletter that will be distributed in early April, tax filing deadlines and last-minute IRA contributions are topics worth hammering home. It’s safe to say by now, this is no ordinary April and that 2020 is no ordinary year. COVID-19 has brought much uncertainty into our lives, and much is still to be learned about this virus, and how we can move forward as a society. Unrest in the stock market has been a constant theme over the past few months, and we will discuss in greater detail, along with some of the key points of the recent stimulus bill recently passed by Congress. Before we start however, we want to let you know that we hope that you, along with your families, are safe and in good health – and that we are thinking of you.
To say it’s been a volatile past couple of months would be an incredible understatement. On February 12, the Dow Jones Industrial Average peaked at 29,407. Just 40 days later, on March 23rd the Dow hit bottom of 18,213 – a 38% decline in just over a month. As large parts of the economy shut down, businesses closed, and panic overtook the markets for the month of March.
Times such as these can be scary for a variety of reasons, but uncertainty is never something markets like. However, panic-based selling of investments rarely yields the desired result. In a perfect world, we could buy investments low and sell them at higher prices. In the real world what often ends up happening in times like this is that investments are sold low and re-bought at higher prices. We are always happy to discuss any adjustments you should consider making to your investments but consider this: in the 16 days following the low of March 23rd, the Dow had rallied 28%. Does it mean we are out of the woods and the worst is over? It does not. But if we look back through the course of history, investors that were able to refrain from panic-based selling have often had portfolios that recovered the quickest, and reached new highs following the lowest points. Please do not hesitate to contact us if you have concerns over specific investments or would like to discuss. That’s what we are here for!
CARES ACT DETAILS
The recently passed stimulus package was passed in an effort blunt the efforts of the economic implications of COVID-19. With any government bill, there’s much information to sift through and digest, we have covered some of the highlights below.
The majority of Americans will be receiving benefits in the form of a one-time payment from the IRS. Most adults will receive a payment of $1,200 each, along with $500 for any child in the family. Payments begin to reduce for individuals making over $75,000, along with head of household filers earning more then $112,500, and married couples making more then $150,000. Payments will not be sent to any single filers with income over $99,000, head of household filers over $146,500, and married couples with income greater than $198,000.
The easiest way to make sure you’ll receive a timely payment is to have filed your tax return recently. The IRS will use direct deposit banking information from your 2019 or 2018 return, whichever is most recent.
Relief for Investors
Aside from the distribution of stimulus checks, several other parts of the CARES Act provide for aid to investors in a variety of ways.
Required minimum distributions for IRA holders are waived for 2020. If you would have been required to take a minimum distribution from an IRA in 2020, that requirement is no longer in effect. This allows IRA holders to leave balances in their IRAs more time to recoup some of the losses sustained in the recent market drop. This could also mean significant tax savings in 2020, along with saving you the need to potentially liquidate securities at a loss in a down market.
IRA holders of any age impacted by COVID-19 are eligible for tax-favored IRA distributions from an IRA of up to $100,000 in 2020, without incurring a 10% early withdrawal penalty. Taxes are still owed on any distribution, but can be paid over three years. If the entire distribution is paid back, no taxes are due, in essence, making the distribution a loan. There are a variety of factors that would allow for you to be considered “impacted by COVID-19,” please let us know if you’d like to discuss those further.
401(k) loans are now able to be taken in amounts of up to $100,000, up from the previous limit of $50,000. Borrowers were also limited to loan amounts of 50% of the entire balance, that limit has been increased to 100% of the vested balance, or $100,000 (whichever amount is lesser).
Tax Filing Deadlines Changed
The IRS also announced several changes to the 2020 tax filing deadline. The date to have your taxes filed for 2020 is now July 15th instead of April 15th. The same applies if you have a balance owed the IRS – your tax payment is now due on July 15th. New York State follows the same schedule, with returns now due July 15th.
Note one exception to the July 15th deadline. If you are required to make estimated tax payments in 2020, your April 15th payment is now due on July 15th. As of now, payment due on June 15th is still due in on June 15th.
Know that we are happy to discuss any parts of the CARES Act and how it could potentially impact you in greater detail – as with any other topic you may want to discuss, please don’t hesitate to contact us.
As we move through April and into May, we cannot predict the short-term course of the stock market, nor will we attempt to. There are more challenges likely ahead, and with that, volatile swings from day-to-day may continue. Though the road ahead may still hold bumps and rough patches, we are here to share this journey with you. We are confident that together, we will emerge on the other side as a stronger, more resilient collective group of people.