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coronavirus

What To Do With Your 401(k), If…

By | 2020, Money Moxie | No Comments

1: You are still employed by the sponsor company

Keep investing! The 401(k) implements an effective purchasing strategy called dollar- cost averaging. This strategy involves making regular and continuous fixed-dollar investments. But it is more than just a payroll deduction plan. Dollar-cost averaging removes the risk of trying to time the market.

By using dollar-cost averaging in a long-term investment account, the average cost per share ends up being less than the average price per share. This is because you buy less shares when prices are high and more shares when prices are low. In other words, volatility can work in your favor. So keep investing.

2. You are no longer working for the sponsor company but are employed elsewhere

You have some options.

(1) You can take a partial or full distribution. In most cases, this is a taxable event and may carry additional tax penalties. In rare situations, is this a good idea. Speak with a professional advisor before choosing this option.

(2) You can leave your 401(k) with your previous company. You can no longer contribute to it, but it will continue to perform based on the investments you have selected.

(3) If your new employer offers a 401(k) and you are eligible for it, you can roll your old 401(k) into your new 401(k) plan. This is a tax-free rollover, and you will need to select new investments based on what the new plan offers.

(4) You can roll the old 401(k) into an IRA. In most cases, this is what we recommend. An IRA gives the account owner more control, more investment options, and better planning opportunities than a 401(k). Like a 401(k), an IRA is a retirement account with annual maximum contribution limits and early withdrawal penalties. A rollover is not considered a contribution, and therefore any amount can be rolled.

3. You are no longer working for the sponsor company and are not employed

You have the same options as above, with the obvious exception of rolling to your new 401(k). If you are retired, however, the rollover option to the IRA may be even more appealing. When it comes time to take distributions from your retirement accounts, the IRA has some significant advantages. Some of these include better risk management strategies, tax-saving distribution strategies, and avoiding mandatory distributions from Roth accounts.

4. You need financial help due to COVID-19

The CARES Act allows some individuals to take early withdrawals from retirement accounts in 2020 without the early withdrawal penalty. If you have been diagnosed with COVID-19, have a spouse or dependent diagnosed with COVID-19, or have experienced a layoff, furlough, reduction in hours, have been unable to work, or lack childcare because of COVID-19, you may qualify. Withdrawals may impact your tax liability, so speak with a financial advisor before taking an early distribution.

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3 Things You Should Know – CARES Act

By | 2020, Money Moxie | No Comments

Back in March, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed. It was designed as a stimulus bill that would provide relief and assistance to millions of Americans affected by the pandemic. Here are three things you should know about the CARES Act.

No Required Minimum Distributions for 2020
This year, you will not have to take out a required minimum distribution from your qualified retirement accounts. The waiver for this year also includes any inherited retirement accounts.

We know many of our clients also like to take advantage of qualified charitable distributions to donate their required distributions directly from their IRAs to a charity, tax-free. If you are over age 70 ½, you can still do this in 2020. It may even be advantageous for you to donate money from your IRA to a charity. This year, since you won’t be required to take money out, it will require more evaluation than in previous years to determine if it is still beneficial for you.

Unemployment Benefits
Unemployment benefits have been expanded, and individuals will be eligible for an additional $600 weekly benefit through July 31, 2020. Additionally, individuals will also have 13 weeks of federally funded benefits through 2020 for people who exhaust their state benefits. Another added benefit from the CARES Act is for people who would not normally qualify for unemployment benefits like independent contractors, part-time workers, and self-employed individuals. They will now also be eligible for benefits.

Penalty-free Withdrawals from Retirement Accounts
The 10% early-distribution penalty tax that normally applies to distributions made before age 59 ½ is waived for distributions up to $100,000 relating to Coronavirus. You must be impacted by COVID-19 for the waiver to apply; this would include being diagnosed with Coronavirus, being unable to work due to lack of child care available, or being furloughed, laid off, or have reduced hours.

While you will still have to pay income tax on any withdrawal, you’ll be able to spread the payment of those taxes over three years. If you decide to repay the withdrawal back into your account within three years, you will not owe income tax, and it will not be counted toward yearly contribution limits.

*Remember to speak to one of our wealth advisors before making the decision to tap into your retirement account.

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Unprecedented Times

By | 2020, Newsletter | No Comments

It is unprecedented times like these that bring people together with a common focus and a shared desire. Protecting the lives of our family, friends, and community has become top of mind, and our daily efforts reflect that devotion.

While times have changed, our commitment has not waivered. Your financial success and well-being are our top priorities. We are diligently working to stay abreast of the changing financial landscape and keep you on track to meet your financial goals.

When creating financial plans, we are continually watching for bumps in the road that could prevent our clients from reaching their goals. Financial markets and the associated volatility are not unexpected. In fact, market volatility, as a risk, is built into every plan we create, whether you are working toward future retirement or enjoying retirement now.

Having had the opportunity to help clients through multiple bear markets, and numerous market corrections, we know that sticking with your plan delivers the best opportunity to achieve financial success.

We will continue to use email and social media to stay connected and keep you informed. We will resume sending postal mailings when COVID-19 restrictions have been lifted.

I invite you to contact one of our wealth managers to discuss your situation, get answers to your questions, and hear what Smedley Financial is doing to help protect your financial future. We are working remotely and are still available.

I want to thank those who have reached out to us, concerned about our well-being. Your thoughtfulness is very much appreciated.

It is our greatest hope that you and your loved ones stay healthy and safe.

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What You Need to Know About the CARES Act

By | 2020, Newsletter | No Comments

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES) stimulus bill was passed. It will provide relief and assistance to millions of Americans affected by the pandemic. This article will highlight some of the most important parts of the recently passed bill.

No Required Minimum Distributions for 2020

This year you will not have to take a required minimum distribution (RMD) from your qualified retirement accounts. The waiver for this year also includes any inherited IRAs or 401ks. RMDs are calculated based on your account value on December 31st of the previous year. Last year was a great year for the stock market, meaning your 2020 RMD was based on your account value at the end of a great year when the Dow was around 28,000.

With the recent events due to COVID-19, the market has taken a tumble, and you would now be forced to take money out at a low point, which is the opposite of what you want to do when investing. No RMDs in 2020 can end up being helpful for many retirees and could save them money on their taxes this year.

If you already took your RMD for this year, you won’t benefit from the waiver, but there is a bright side. You probably took your distribution when the market was at a high point, and that is a good thing.

We know many of our clients also like to take advantage of qualified charitable distributions to donate their required distributions from their IRA to a charity, tax-free. If you are over age 70 ½, you can still do that this year and it may still be advantageous for you to donate money from your IRA to a charity. This year, since you won’t be required to take money out, it will require more evaluation than in previous years to determine if it is still beneficial for you.

Payments to Individuals

Most individuals will receive a direct payment from the federal government. This is technically a refundable tax credit for 2020. It will be based on 2019 taxes (2018 if you haven’t filed yet). You must have a Social Security number and not qualify as a dependent of another individual.

The amount is $1,200 per adult plus $500 for each qualifying child under age 17. Rebates will be phased out for those with adjusted gross income above $75,000 ($150k if married filing jointly, $112k if filing as head of household). The rebate will be reduced by $5 for every $100 in income over the threshold.

Unemployment Benefits

Individuals will be eligible for an additional $600 weekly benefit through July 31, 2020. Additionally, individuals will have 13 weeks of federally funded benefits through 2020 for people who exhaust state benefits.

People who would not normally qualify for unemployment benefits like independent contractors, part-time workers, and self-employed individuals will be eligible for benefits.

Penalty-free Withdrawals from Retirement Accounts

The 10% early-distribution penalty tax that normally applies to distributions made before age 59 ½ is waived for distributions up to $100k relating to coronavirus. While you’ll still have to pay income tax on any withdrawal, you’ll be able to spread the payment of those taxes over three years. If you decide to repay the withdrawal back into your account within three years, you will not owe income tax, and it will not be counted toward yearly contribution limits.

*Remember to speak to your financial advisor before deciding to tap into your retirement account.

No Charitable Contribution Limits for 2020

For those who itemize deductions, this act suspends charitable contribution limits for 2020. To benefit from this, you need to donate to a qualified charity and not a donor-advised fund. Usually, deductible contributions are capped at 60% of your adjusted gross income, but the new bill allows you to deduct 100% of the contribution.

Student Loans

If you have a student loan held by the federal government, you will automatically get a six-month payment suspension (ends September 30, 2020), and interest will not accrue during that time.

If you have any questions about how this stimulus bill will affect you, please reach out to us, and we will be happy to help you!

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Year of the Coronavirus

By | 2020, Money Moxie, Newsletter, Travel | No Comments

Coronavirus was difficult to recognize and impossible to track when first contracted around November 17, 2019. It was misunderstood in China. Dismissed in America. Many said, “it’s just the flu.” But Covid-19 is no ordinary flu. Those infected are contagious days before symptoms show. Some may never have symptoms as they spread the disease. It is a novel strand of the Cornovirus, and that means it’s new, and there is no immunity to it. Most of us are likely to catch it sometime in the next 12 months.

The healthcare system is ill-prepared for an outbreak. We have the expertise, equipment, and medicine. We do not have the capacity. This is where flattening the curve comes in. The goal of the government is to slow the spread of the virus to buy time to help those infected and those researching prevention and treatments.

In 2020, the stock market lost 20% in roughly 20 days. Historically, it has taken 400 days from the market top for it to fall by 20%. The 12-year-old bull market is over.

Over the last few years, we have had a smooth run interrupted by violent drops. The S&P 500 dropped roughly 19% in 2016 and twice in 2018. This week, it finally reached 20% and then kept going.

There is so much we don’t know, so we will focus on what we do know. American consumers will continue to spend. We are resilient. However, there is a shift in where we spend. This has led to a lack of global demand for oil. OPEC producers prefer stable prices and would like to cut oil supplies to push prices higher. Russia refused to cooperate, which has driven prices sharply lower. The United States is now a major world producer, so we find our country caught in the middle of this unexpected consequence of the current pandemic.

Falling energy prices are both bad and good. The immediate impact is bad. Energy suppliers feel the financial pinch. Some may default on debt payments, which could domino through the economy. Eventually, these lower prices reach consumers. I have never heard a friend complain about low prices at the gas pump. This leads to more flexible spending and more growth. It takes about 18 months for the low price of oil to show up in higher economic growth. Of course, the financial markets anticipate.

Don’t fight the Fed. The Federal Reserve lowered its overnight interest rate to zero and announced it will inject $1.5 trillion into the financial system to keep the markets functioning properly. This is more money than the Fed has put into the markets in the last 5 years combined. The entire Federal Government budget is $3.8 trillion. So, while the Fed can’t fight the virus, it is doing what it can to prevent a breakdown as we experienced in 2008.

When will financial markets come back up? (1) Investors need to wrap their minds around all the sudden changes to everyday life, and (2) The growth of Coronavirus cases must slow. Problems don’t have to disappear. Investors just need less uncertainty.

When all the news turns negative, any sign of hope could be the turning point. That’s what makes predicting the future so difficult. And this is why we work so hard to manage risk and be invested to participate in long-term growth.

*Research by SFS. Data from the Federal Reserve Bank of St. Louis. Investing involves risk, including the potential loss of principal. The S&P 500 index is widely considered to represent the overall U.S. stock market. One cannot invest directly in an index. Diversification does not guarantee positive results. Past performance does not guarantee future results. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at any time, based upon changing conditions. This is not a recommendation to purchase any type of investment.

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Climbing a Wall of Worry

By | 2020, Money Moxie, Newsletter | No Comments

Climbing a wall of worry is a common phrase in the investment world. The implication is that the market will move higher as it overcomes uncertainty. In 2018, the U.S. stock market had its worst December since 1931. It followed with the best returns since 2013. The American consumer kept things going in the economy at just above 2 percent while interest rate cuts and asset purchases by the Federal Reserve made all the difference for the markets.

Don’t Fight The Fed

In 2018, the Federal Reserve (Fed) was on auto-pilot: raising interest rates unless something went wrong. By December 2018, the Fed’s actions spooked investors.

By July 2019, the 2-year government bond paid a higher interest rate than the 10-year. That is what we call an inverted yield curve. The short-term rates are somewhat controlled by the Fed. The long-term rates are more driven by investors. So, the inverted curve is the result of investors believing that the Federal Reserve is making a mistake by keeping short-term rates too high. Over the last 50 years, the Fed has never been so quick to react as it was in 2019. This very well could have helped us avoid a recession in 2019-2020.

The Fed seems willing to do whatever it takes to keep this steady economy going, but the Fed is also going to try to stay out of the way in an election year. I expect it will take a large change in the economy to entice the Fed to make any changes to interest rates.

After three interest rate cuts last year, the Fed really may not have to engage in more stimulus in 2020. The impact of those cuts is likely to trickle down into the U.S. economy this year.

More Slow Growth: No Recession

The U.S. economy has averaged 2-3% economic growth for the last 10 years. This trend is likely to continue. Corporate earnings in the United States ended 2019 near zero. Expect a bounce. However, uncertainty over global demand, trade, and politics will probably continue. Once again, economic growth will rely heavily on American consumers.

Coronavirus: Watch For a Peak

Coronavirus has spread incredibly quickly through China, and around 2.3 percent of those who become infected, die of the disease. The World Health Organization (WHO) declared it a global health emergency on January 30, 2020.

Of recent outbreaks (Ebola, Zika, & SARS), SARS seems the best comparison. SARS spread more slowly. The World Health Organization did not declare it a global crisis until the number of people infected peaked (March 12, 2003).

In 2020, the Chinese government and the WHO have acted more quickly to contain Coronavirus. If successful, infections should peak in February. If efforts fail immediately, it seems likely that, just as with SARS, Coronavirus will be on the decline by March.

*Research by SFS. Investing involves risk, including the potential loss of principal. Dow and S&P 500 indexes are widely considered to represent the overall stock market. One cannot invest directly in an index. Diversification does not guarantee positive results. Past performance does not guarantee future results. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at any time, based upon changing conditions. This is not a recommendation to purchase any type of investment.

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