The CARES Act Summary
The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) is a $2 trillion package intended to provide relief to taxpayers and employers from the effects of government mandated restrictions in response to the COVID-19 pandemic.
For most Americans, the key provision of this act is direct payments of up to $1,200 for citizens with AGIs of less than $75,000 and payments of up to $2,400 for married couples with incomes less than $150,000. Taxpayers with AGIs above those thresholds will see their payments reduced until they are eliminated at AGIs of $100,000/$200,000.Taxpayers with dependent children under age 17 will receive an additional $500 per child.
Taxpayer eligibility will be based on their 2019 return unless not yet filed. In that case, 2018 will be the return used. Individuals do not need to have reportable income to be eligible. Taxpayers who have not been required to file returns due to modest income will also be eligible.
Penalty-Free Retirement Plan Distributions
Taxpayers with funds in IRA, company sponsored retirement plans, or both will be permitted to withdraw up to $100,000 without incurring a 10% penalty normally assessed for those under age 59 ½. Mandatory withholding requirements will be waived as well. Additionally, these funds can be returned to their plans within three years to avoid taxation. Funds retained can be spread over a three year period for income tax purposes.
Required Minimum Distributions (RMDs)
RMDs are waived for 2020. Taxpayers who have already withdrawn their RMDs have the option to return them to their IRAs or retirement plans.
Taxpayers will be able to deduct up to $300 for charitable contributions above and beyond their standard deductions. For taxpayers who itemize their deductions, limitations on the deductibility of charitable deductions based on AGI have been suspended.
Student Federal Loan Payments
Student federal loan payments have been deferred until September 30, 2020.
Base unemployment compensation will be augmented by an additional $600 per week. The benefit period will be extended by 13 weeks. Benefits will be available immediately waiving the mandated one week waiting period.
Small Business Benefits
Loans will be available to qualifying businesses to coverall payroll and other operating costs. These loans will have a maximum interest rate of 4% and be eligible for full or partial forgiveness. Funds used within the first eight (8) weeks of the loan to fund payroll and operating costs may be forgivable if the company maintains the same number of employees.
Payroll tax credits will be provided for businesses not receiving a covered loan.
The CARES Act covers many additional items including:
- Expansion of loans from 401(k)s
- Expansion of qualified medical expenses for HSAs and FSAs
- Medicare benefits expanded for COVID-19 issues
By necessity, this is a summary of the CARES Act and should be used only as a starting point for discussion and planning. You should consult your professional tax advisor and your trusted financial advisor to discuss the specifics of your situation.
We fully expect to be receiving additional guidance and regulations in the coming days and weeks. Those may alter the interpretation or impact of individual components of this act.
Signs of Stock Market Recovery
We are in uncharted territory. Any attempts to identify signs of a stock market recovery from this COVID-19 based decline will – by necessity – be based on science, art, and speculation. We are in uncharted territory.
Most economists believe this market crush has been driven by two components. The Coronavirus is certainly the main driver (perhaps as much as 80% of the downward push). The second component was an economic one of stocks that had been rising at significantly above average rates for a significantly long period of time and were ‘due’ for a correction.
While psychic abilities would be helpful at a time like this, those claiming such skills are more likely psychotic – or worse. Some expect the virus to peak in three weeks. Others are speculating three months. The only absolute truth is no one will be correct on specific signs or timeframes until long after they have happened.
It seems likely that the market recovery will happen in at least two ‘pieces’. The first rebound will likely be in response to positive news around the virus peak. Stock markets generally work in anticipation of events not the actual events themselves. As a result, investors (professionals certainly – amateurs likely) are looking for the first signs of a peak and will respond hoping to get there before the decline starts.
The second portion of the market rebound will likely occur when investors see the first signs of economic recovery following the virus recovery. Many analysts are projecting a significant drop in GDP in the second quarter – no surprise. Most believe the drop will bottom and begin recovering in the third quarter or early fourth quarter. Investors will begin to reinvigorate the markets as they see the first signs of this economic resurgence.
In summary, what ‘signs’ are we looking for:
- Slowing, approaching the peak of virus cases heading to a decline
- Virus no longer the lead story on every news report
- Businesses allowed to re-open, employees returning to work
- Unemployment claims beginning to plateau heading to significant declines
- Job creation begins anew
- Consumer spending begins to return
- Corporations begin to produce new inventory
We are in uncharted territory – in case you missed my first two statements of this fact. Looking for signs is one part sound, common-sense analysis and one part reading tea leaves. If you believe you have a precise handle on the signs and the timing – you are most certainly wrong.
How to ‘Get Back Into the Market’
If you believe you can read all the signs, call the bottom of the market, and invest all of your available funds in one day – go for it. And good luck. In the history of stock markets everywhere and throughout time – you would be the first.
If, however, you are looking for a sound strategy that will give you a reasonable expectation of a favorable result then you must employ actions that have an actual opportunity of getting you there.
I would suggest a three step re-entry process.
Step One – Decide what stock market allocation you wish to have when fully invested
Step Two – Choose the period of time you expect the market recovery will take
Step Three – Invest in equal amounts each week over your time line
For purposes of demonstration I will be addressing the approach to a $1.2 million portfolio that is currently in some form of cash.
Step One – We wish 50% ($600,000) to be in the market when we’re finished
Step Two – We expect the recovery to take three months (12 weeks)
Step Three – We will invest $50,000 each week for three months – on Wednesdays
Ok, so maybe Wednesday isn’t so important – pick your favorite day of the week and invest each week on the same day. Some weeks the markets will be way down and you’ll be buying way more shares (a bit of a bargain). Some weeks the market will be way up and you’ll be paying a bit more (relatively speaking). Most weeks will be somewhere in between. You’ll have twelve (12) bites at the apple. On average, you will put yourself in solid position for a solid result.
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Please stay well. We keep all of you in our prayers.
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