For your efficiency, organization, and reference, this post is divided into three sections:
- Perspective: A briefing on recent events, markets, and outlook.
- Planning Considerations: Summaries of important legislation and financial planning implications.
- Actions & Resources: Recommended actions to take now and resources for you.
Perspective:
On Sunday, March 1, 2020, the front-page headlines of the New York Times related to Afghanistan and the US Democratic presidential primary result in South Carolina. Back on page 28 was the article, “First US Death from Coronavirus Is Reported.” For many of us, March 1 now seems like a long time ago. Yesterday marked the close of the first quarter of 2020. Now, on April 1, stay-at-home orders, quarantines, volatility, bear markets, emergency stimulus bills, peaks, curves, and social distancing measures have come to dominate individual and national psyches. As we begin the march toward May 1st and the close of the second quarter on June 30th, it’s a reminder of how quickly the narrative can change and how our frame of reference can often define our view.
My prior post, On Resilience, discussed the “Stockdale Paradox” and I’d encourage you to revisit the three-minute video discussing that concept here. The Stockdale Paradox describes the need and discipline to “confront the brutal facts” while maintaining an unwavering faith that you will prevail. The past week has offered many contrasting examples of brutal facts as evidenced by the headlines:
- Wednesday, April 1: White House projects up to 240,000 deaths.
- Friday, March 27: US jobless claims soar.
- Thursday, March 26: Senate passes $2 trillion stimulus bill.
- Wednesday, March 25: Dow soars 11%, best day in 87 years.
This staccato is reminiscent of the story of the farmer and the horse.
There is an old farmer who had worked his crops for many years. One day his horse ran away. Upon hearing the news, his neighbors came to visit. “Such bad luck,” they said sympathetically. “Maybe,” the farmer replied.
The next morning the horse returned, bringing with it three other wild horses. “How wonderful,” the neighbors exclaimed. “Maybe,” replied the old man.
The following day, his son tried to ride one of the untamed horses, was thrown, and broke his leg. The neighbors again came to offer their sympathy for his misfortune. “Maybe,” answered the farmer.
The day after, military officials came to the village to draft young men into the army. Seeing that the son’s leg was broken, they passed him by. The neighbors congratulated the farmer on how well things had turned out. “Maybe,” said the farmer.
The “brutal facts” aren’t “good” or “bad” – they are just brutal facts. It is in the information we digest to determine our best course of action. Maintaining that perspective is incredibly challenging. So challenging that it has been discussed for literally thousands of years.
“Men are not disturbed by things, but by their opinion of things.” – Epictetus, 50 AD
As we look ahead, US (and global) infection and casualty rates will certainly increase. The human, medical, economic, and social toll is heart-wrenching. Markets will react to this new information and, as always, those reactions will overshoot both negatively and positively. The near-term lows of March 23 will likely be tested. Lows will be drawn out until proven otherwise and only then in hindsight. Thinking we are done for, though, short-changes all that made us who we are to begin with. This pandemic will spur massive investments in biotech, medtech, and pharma akin to the 1930s through 1950s. And, hopefully, it will also spur further international cooperation as an antidote to nationalism – as viruses honor no borders.
So, ready yourself for what’s ahead, maintain an unwavering faith that you will prevail, and let’s take thoughtful steps along the way – as detailed in the Planning and Actions sections below.
There is much in the world to be concerned about right now. The BSW team is working tirelessly, smartly, and effectively to make sure that your BSW engagement is a source of steadiness and strength in these turbulent times. I’m humbled and honored by my colleagues’ efforts — and by our clients’ resolve.
Be well and reach out — we are here to help.
-David Wolf, CEO
Planning Considerations:
Note: The following updates were prepared by BSW Financial Planner Kat Biscornet. Kat’s expertise in analyzing legislation and its financial planning implications is invaluable, doesn’t exist at most advisory firms, and cuts to the chase of actionable opportunities. We are grateful to have her on the BSW team. -dw
Navigating the Coronavirus Aid, Relief, and Economic Security (CARES) Act
There have been a number of financial planning considerations emerging from the $2 trillion Congressional relief package signed into law last Friday. We have outlined a few of the highlights and are here to help you navigate the provisions and determine how they may fit into your specific situation.
Recovery Rebate
The recovery rebate provides a $1,200 one-time payment per individual ($2,400 per couple) and $500 for each child under 17. The payment amount starts to phase out at $75k for individuals or $150k for married-filing-jointly and is based on the most current return on file. There could be a small window of opportunity for some: If 2019 income was low enough to qualify, but 2018 income was above the phase out limits, it may be advantageous to file 2019 taxes as soon as possible. Also, for those who had a child in 2019, filing sooner could make sense as well.
RMDs waived
The required minimum distributions from IRAs and a list of other retirement plans are waived for 2020. This gives us the option to keep those funds invested during increased volatility and could help lower your 2020 tax bill. For distributions that have already been made there is a 60-day window from the date of distribution to roll those funds back into the account.
Retirement Account Rules Relaxed
Up to $100,000 may be withdrawn from qualified retirement accounts in 2020 without the usual 10 percent penalty, if necessary. Any income taxes owed may also be spread out over three years from the date of the distribution. The withdrawn funds may also be deposited back into the account during those three years. These exceptions apply only to Coronavirus-related withdrawals, ie the account holder, their spouse, or dependent tested positive or experienced a variety of other negative economic consequences related to the pandemic.
AGI Limit for Charitable Contributions temporarily repealed
The adjusted gross income limit for cash contributions was temporarily increased from 60% to 100%. This applies only to cash contributions that go to a 501(c)(3) charity.
Relief for Small Business Owners
The CARES Act also contains a number of provisions that provide relief to small businesses with the goal of keeping the business operating while maintaining the number of employees. Here are just a few examples:
- The Paycheck Protection Program (PPP) offers loans to cover payroll costs, group health insurance premiums, rent or mortgage interest, and utilities. These loans can potentially be forgiven up to 100% if used within the guidelines and the number of employees is maintained.
- Employee Retention Tax Credit & Payroll Tax Deferral: The Act provides for an Employee Retention Tax Credit, and also allows half of 2020 payroll taxes to be be deferred until December 31, 2021, with the remaining half deferred until December 31, 2022. These provisions apply to self-employed individuals, as well, though both the credit and deferral may not be available if the business receives a loan authorized by the Act, such as the PPP.
- BSW has been in active dialogue with our banking colleagues on the details and application processes for the PPP and Economic Injury Disaster Loans (EIDL). Please contact us to discuss your situation or to connect you with a bank facilitating PPP loans.
BSW Advisors are here to help you navigate the CARES Act since some of the provisions are timely and actions have to be taken by certain deadlines. Please reach out if you have any questions or we can provide any assistance.
Actions & Awareness:
- 2019 Taxes:
- The 2019 income tax filing deadline has been extended to July 15th, 2020. BSW is continuing to coordinate and distribute tax information to your BSW Vault and your tax professional.
- 1Q20 Estimated tax payments have also been extended to July 15th, 2020.
- K-1s for Harbor and Monarch direct real estate investments will be re-analyzed for potential revisions to capture potential additional tax benefits conferred by the CARES Act.
- 2020 Tax-loss Harvesting: BSW will be selectively harvesting available losses in taxable accounts to offset future taxes — while maintaining portfolio allocations.
- Personal Documentation: Ensure that your personal documentation is up-to-date and encourage others to do the same.
- Powers of Attorney: Medical POA & Durable POA
- Guardianship
- Living Wills
- Wills
