CARES Act Benefits For Individuals

The Coronavirus Aid, Relief, and Economic Security act – the CARES Act – is the largest economic bill in U.S. history and was designed to “provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.”

Spanning close to 900 pages, the comprehensive aid package covers a lot, including direct payments to Americans, expanded unemployment insurance, changes to retirement rules and billions of dollars in aid to businesses.

The CARES Act builds upon earlier versions of federal government support and is the third such bill, coming shortly after the “Coronavirus Preparedness and Response Supplemental Appropriations Act” and the “Families First Coronavirus Response Act” were approved.

Here are a few highlights that might be of interest to individuals:

Rebate for Individuals

The bill would provide a $1,200 refundable tax credit for individuals ($2,400/joint). Additionally, taxpayers with children will receive a flat $500 for each child. The rebates would not be counted as taxable income.

The rebate does phase out as follows:

• Starts to phase out at $75,000 for singles and completely gone at $99,000

• Starts to phase out at $150,000 for married joint filers and completely gone at $198,000

• Starts to phase out at $135,000 for a head of household filers

Unemployment Expansion

Unemployment insurance assistance now includes an additional $600 per week payment to each recipient for up to four months plus extend benefits to self-employed workers, independent contractors, and those with limited work history. The government will provide temporary full funding of the first week of regular unemployment for states with no waiting period and extend benefits for an additional 13 weeks through December 31, 2020.

Waiver of 10% Withdrawal Penalty

The 10% penalty for early withdrawals from IRAs and retirement accounts is being waived for 2020, subject to a maximum allowable withdrawal of $100,000.

Withdrawal amounts are taxable over three years, but taxpayers can recontribute the withdrawn funds into their retirement accounts for three years without affecting retirement account caps.

Required Minimum Distributions

For 2020, individuals expected to take Required Minimum Distributions will not be required to withdraw that amount from their IRA or retirement plan.

Coronavirus-Related Distributions

The CARES Act allows for “Coronavirus-related Distributions” which allow participants in IRAs and retirement plans the ability to take a qualifying withdrawal and pay those funds back without tax or interest over a 3-year period. The withdrawal is subject to a $100,000 limit.

There are qualifications for Coronavirus-Related Distributions, however, including:

• Personal, spouse or dependent diagnosis with COVID-19

• Quarantined, furloughed, laid off, or work hours reduced because of COVID-19

• Unable to work due to lack of childcare due to COVID-19

• Own a business that is closed or shortened hours due to COVID-19

• Other factors later specified by the IRS

Retirement Loans

For those unable to meet the Coronavirus-Related Distributions criteria, withdrawals from retirement plans in the form of a loan exists.

Generally speaking, those loans need to be repaid over 5 years and cannot exceed $50,000 or half the vested account value, whichever is less. Now, however, the amount is doubled so that one can take a loan up to $100,000 or half of the vested account value, whichever is less. The loan still needs to be repaid, but payments can be deferred up to 1 year after the loan is taken.

Your Financial Advisor

As with all federal government programs, there are rules, deadlines, and qualifications that can be difficult to decipher. The fact is that while this is by far the largest economic bill in America’s history, it is near impossible for any bill to take into account every unique situation.

So, before you go down a path that might not be in your best interest, set up a CARES Act Benefits Consultation by clicking here or email me at ivan@otbfinancialplanning.com.

This is especially important as the CARES Act is bill number three. And Washington has been talking about bill number four, which will undoubtedly bring more economic relief and changes.

Dollar Cost Averaging - Creating Good Money Behavior

The increase in volatility to start 2018, coupled with the almost 9-year bull market run has caused many sophisticated investors to question when to buy and when to sell. So, it’s important to remember that there is a very simple investment strategy that doesn’t require you to stare at trading screens all day – Dollar-Cost-Averaging.

It isn’t new and exciting, but many a successful investor has proven its worth. The principle behind it is this: You put the same amount of money into the same investment on the same day each month. Those months when the investment’s price goes up, your set amount does not buy as many shares. But when the investment‘s price dips, you get to buy more shares at a cheaper price.

Guess what? When the price goes back up, all those shares you bought cheaply make you some money. Those shares you bought when the price was high look good, too.

There are a few reasons to invest this way:

Celebrate Twice

First, it takes the guesswork out of trying to predict what the stock market is going to do. It’s easy to lose money seeking to time the market. Even professional investors can be pretty bad at it. As long as you feel good about the investment you buy, you know that the fundamentals are right, and your situation has not changed, you shouldn’t care what the stock market is doing day to day.

In fact, maybe you should celebrate when the market dips and you buy because you get to buy more shares that you think have great long-term prospects.

And you celebrate again when the market rallies because all your shares are more highly valued. You win either way. Also, you won’t have to put so much time and energy into investing. You can focus on your career and family rather than obsess over your portfolio.

Disciplined Approach

Next, Dollar-Cost-Averaging creates a disciplined approach to building wealth. You are now on a path to save and invest regularly, building wealth one month at a time. Yes, we have all read about those hot stocks that made someone rich overnight. But for most of us, it’s going to take a working lifetime to accumulate our wealth.

It Doesn’t Take Much to Start

You can do this for as little as $100 per month and many platforms don’t even have a minimum. You don’t need thousands of dollars to get started or to continue your dollar cost averaging plan. So, no excuses.

Some Things to Think About

·       Start with a monthly amount that won’t break your bank. This is money you won’t miss on a monthly basis.

·       Commit to a Dollar-Cost-Averaging program of at least 12 months. It takes time to build wealth and see the results of your efforts.

·       Don’t wait for the price to go up or down. The key is consistency. Don’t vary the amount based on how much is in your savings account that day, either. Set it up for the same day, same amount, same investment.

·       Don’t stop it when the market retreats. If you still believe in your investment, keep investing. Remember, in a down market you are buying more shares for less money.

Final Thoughts

The Dollar-Cost-Averaging approach is about building wealth steadily, consistently and with discipline over time. It’s about creating and strengthening good money behavior. When you do this for 10 years and see your accumulated balance, you won’t care that you didn’t invest exactly on the best day in the market in 2018.

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Organization, efficiency, and discipline are the three primary steps of financial planning. Organization is knowing where your money comes and goes. An efficient portfolio means a better chance of profits, and discipline keeps you on the right track.

Statistics tell us that the average credit card debt per person - including all people who pay off their cards each month - is over $5,500. Folks don’t have a handle on the big picture of their personal financial world.

If you are one of these folks, you should know what the steps of financial planning are and get started today, either on your own, using resources on the Internet, or by hiring a financial planner.

The first and most important step of financial planning is organization. You can be a lot closer to your financial goals in life by organizing your finances and understanding money flows, both inflows (like your paycheck) and outflows (bills).

If your financial life isn’t terribly complicated, an Excel spreadsheet may suit your needs perfectly. However, using something a little more sophisticated, such as Mint, Quicken or other online budgeting tools may become necessary, as you and your financial life continue to evolve.

There are a million ways to approach organization, but the “how?” is nowhere near as important as “when?” Of course, the answer to when to start organizing is now.

Whatever method you choose, once you set up the system you should enter historic information as far back as 12 months (if you have it). This requires digging out the old bank, investment and credit card statements. It’s not as intimidating as it sounds. In today’s connected world, you can simply download the transaction history from your bank, investment or credit card companies, and import it directly into your Mint or Quicken file. You still need to go through things, but much of the data entry is done for you.

If you don’t have the time, the facility or the patience to enter this historic information, don’t give up. Tracking your information from today forward is valuable as well. Think about it: In a year, you’ll have 12 months’ worth of history in your system.

As you generate this history (or review the old history), patterns of your spending habits emerge. Perhaps you spend much more on golfing than you realized, or maybe your home decorating expenses were greater than your mortgage payments over the last year. Each of these patterns helps you to understand where your money goes. Once you know that, you can begin to control it.

Quicken or Mint.com also organizes your investments, which takes us to the next step: efficiency.

If you have a couple of old 401(k)s from former employers, you can look at all investment accounts from a top-down perspective, using these tools. For many folks, it may be the first time you see all your investments in one place.

This is when you adjust your allocation for a more efficient portfolio. You might think your investments were diverse enough but find that you bought the same investments in multiple accounts. An efficient allocation is about spreading your money across many different broad asset classes.

Now we’re into the place where the rubber meets the road. After you organize everything in an efficient manner, you need to maintain this organization over time. This requires discipline.

You need to balance your checkbook at the end of the month and keep your information up-to-date when you receive the credit card and investment statements. The automated tools help a lot, but you can’t just let it go on autopilot. You need to sort through the information to understand what’s going on with your cash flow and investments. You might need to change your spending habits or rebalance your investments if they get out of line.

But what takes the most discipline is maintaining your investment allocation as planned when the market is very volatile. You might be tempted to pull out of the market after a big loss or start buying in when the market has a huge run-up. Keeping you disciplined is quite often the major benefit of having a financial advisor, who can help you maintain the proper long-term perspective of your investment allocation and not let emotions rule the actions.