Does it feel like 2021 yet?

The twists and turns so far make it seem like 2020 is dragging into a second season.

As an American, I’m shocked and worried, and I’m wondering how political disagreements turned into excuses for violence.

As a financial professional, I know that the politics, protests, and rioting in DC are just one-factor affecting markets.

I honestly don’t know what will happen over the next few weeks, but I can help you understand how it affects you as an investor.

Why did markets surge the day the Capitol was attacked?

While the world watched the violence in DC with horror, markets quietly rallied to new records the same day.1

That’s weird, right?

Well, not really.

I think it boils down to a few things.

1. Computers and algorithms are dispassionate, executing trades regardless of the larger world.

2. Markets don't always react to short-term ugliness. Instead, they reflect expectations about economic and business growth plus a healthy dose of investor psychology.

3. With elections officially at an end, political uncertainty has dissipated.

Overall, I think investors are looking past the immediate future and hoping that vaccines, increased economic stimulus, and economic growth paint a positive picture of the future.

The Democrats control the White House and Congress. What does that mean for investors?

If you’re like a lot of people, you might think that your party in power is good for markets and your party out of power is bad.

That makes for a stressful experience every four years, right?

Fortunately, that’s not the case at all. Markets are pretty rational with respect to politics and policy.

While businesses and investors generally dislike increased taxes and corporate regulation, the Democrats hold such slim majorities in the House and Senate that it limits their ability to pass many big policy changes.

Also, the Democrats’ immediate agenda is very likely to be focused on fighting the pandemic and passing more stimulus aid, both of which should support stock prices.

Does that mean markets will continue to rally?

No guarantees, unfortunately. With all the frothy market activity and rosy expectations about the future, bad news could knock stocks down a peg or two.

A correction is definitely possible, and some strategists think certain sectors are in a bubble.

The bottom line, expect more volatility.

What comes next?

I wish I could tell you.

I’m optimistic that the light at the end of the tunnel is getting closer and we can start going back to normal.

I’m proud of what scientists and medical professionals have been able to accomplish in such a short amount of time.

I’m grateful for the folks around me.

How about you?

What’s your take? I'm interested to hear your thoughts.

Let me know ivan@otbfinancialplanning.com

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.

How to Avoid Scams at Tax Time

Here’s what to know and how to protect yourself.

Identity thieves often swipe your bank or credit card account numbers, birth date information or Social Security Number (SSN) to steal from your accounts, open a new and phony account or make illegal purchases. Some 15.4 million consumers were victims of identity theft or fraud last year, according to a new report from Javelin Strategy & Research.

All sorts of nefarious schemers can come after you via the phone or email. Your tax return offers a trove of your personal information, and this time of year scammers also prey on your apprehension about paying taxes.

The Internal Revenue Service recently published its latest list of scam warnings, freely admitting, “It’s true: Tax scams proliferate during the income tax filing season.”  

Among IRS tips:

• Beware of unexpected communication at the start of tax season that claims to come from the IRS.
• Don’t fall for phone and phishing email scams that use the IRS as a lure. The fake messages typically probe you for personal information thieves often pose as the IRS offering a bogus refund or warning you to pay past-due taxes – sometimes, with phone scams, threatening you with immediate arrest if you hang up.
• The IRS sends letters by postal mail and initiates no contact with taxpayers by email to request personal or financial information. This means any e-communication, such as text messages and messages over social media.
• The IRS doesn’t ask for personal identification numbers (PINs), passwords or similar confidential information for your credit card, bank or other accounts.
• If you get an unexpected email, open no attachments and do not click links in the message. Forward the email to phishing@irs.gov. See more about reporting phishing scams involving the IRS at the agency’s website.

(Note: Only IRS.gov is the website of the U.S. government's Internal Revenue Service.)

Source: Federal Trade Commission, Consumer Sentinel Network.

To protect against scams and identity theft:

• Don’t carry your Social Security card or any documents that include your SSN or Individual Taxpayer Identification Number (ITIN). Don’t keep forms containing that information in your car, either.
• Don’t give any business your SSN or ITIN just because someone who claims to represent the company asks. Give such information only when required and when positive who you’re talking to.
• Check your credit report every 12 months. Stay aware of your credit status and learn quickly about any illegal use of your credit or accounts.
• Secure personal information in your home.
• Protect your personal computers with firewalls and anti-spam and anti-virus software, updating security patches and changing passwords for your home Internet accounts.
• Give no personal information over the phone, through the mail or on the Internet unless you initiated the contact and are sure of the recipient.
• Choose a tax preparer carefully. Most preparers provide excellent service a relative few are unscrupulous. The IRS recommends watching for preparers who try to manipulate or change your income figures or makeup deductions to qualify you for tax credits and unusually large refunds.

Tax season brings enough to worry about. Cross identity theft off your list.