Stimulus 2.0: What Is (and Isn’t) Included in Consolidated Appropriations Act (CAA) of 2021

Stimulus 2.0: What Is (and Isn’t) Included in Consolidated Appropriations Act (CAA) of 2021

 

On December 21, 2020, Congress passed the second round of major stimulus as a follow-up to the CARES Act passed earlier in March 2020. President Trump initially balked at signing the new legislation, citing that he wished to see a higher Recovery Rebate payment for families, but ultimately he signed the legislation as presented on December 27, 2020. While the CAA expanded on some of the relief provided in the earlier CARES Act, it was also notable for a few specific provisions it didn’t include.

Here are some highlights included in the bill:

Recovery Rebate: Qualified families are eligible for an additional advanced rebate of $600 per taxpayer and $600 for each qualified child (compared to $1,200 per taxpayer and $500 per child under the CARES Act). The income thresholds remain the same as under the CARES Act, with phaseouts beginning at $75,000 for Single or $150,000 for Married Filing Joint.

Extended Federal Unemployment Benefits: The earlier CARES Act authorized additional federal unemployment benefits to be paid on top of state unemployment benefits to help individuals affected by the pandemic. However, those federal benefits were set to expire in December 2020, but the CAA extended the benefit for another 11 weeks at a reduced rate of $300 per week (down from the original $600 per week). Employees as well as self-employed individuals remain eligible for the extended federal unemployment benefits.

Enhancements to Paycheck Protection Program (PPP) Loans: The CAA provides significant relief to businesses impacted by the pandemic. In addition to expanding the list of qualified expenses eligible for loan use, the CAA opened the doors for businesses to obtain a second PPP loan. These loans may be forgiven if used to pay for qualified expenses such as wages, rents, utilities, and now certain operational expenditures, property damage due to vandalism, and worker protection expenditures. Also of note, the act specifically allows businesses to deduct expenses paid with PPP loan proceeds, even if the loan is later forgiven.

 

Equally notable are the provisions NOT addressed in this bill:

No Extension of the 2020 RMD Waiver: Taxpayers will need to resume their Required Minimum Distributions in 2021.

No Extension of Coronavirus-Related Distributions (CRD) into 2021: Last year, individuals affected by the coronavirus could access retirement accounts (IRAs, 401(k)s, etc.) for up to $100,000 without being subject to the 10% early distribution penalty if they were under age 59 ½. Furthermore, these distributions could be paid back within 3 years to “undo” the income. Unfortunately, the CAA did not extend this withdrawal provision into 2021, so be careful when accessing retirement accounts before age 59 ½.

No Further Student Loan Relief: Federally backed student loan payments had been suspended under the CARES Act and through executive order through January 31st, 2021, but the CAA did not further extend this relief.

 

President Biden has already indicated that a third round of stimulus will be needed, so we are likely to see more legislative changes this year. We will continue to stay on top of the changes impacting our clients, but please reach out to your advisor at any time if you would like to understand how these changes may impact you.

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

How to Report Your 2020 RMD Rollover on Your Tax Return

How to Report Your 2020 RMD Rollover on Your Tax Return

 

Following the stock market decline early in 2020, Congress passed the CARES Act on March 27, providing relief for individuals and businesses impacted by the pandemic. One of the provisions was a suspension of 2020 Required Minimum Distributions (RMDs). Individuals who hadn’t taken a distribution yet were no longer required to do so.

For individuals who took a distribution early in 2020, they were given the opportunity to “undo” part or all of that distribution by returning funds to their IRA by August 31, 2020.

 

Tax Forms for IRA Rollovers

Some taxpayers who took advantage of this rollover to undo that RMD may be surprised to get tax forms reporting the withdrawal.

Example 1: Kendra turned 75 in 2020 and had a $30,000 RMD at the start of the year. She took her distribution on February 1, 2020, with 10% tax withholding ($27,000 net distribution and $3,000 for taxes). She didn’t “need” the distribution as Social Security and other income covered her entire cost of living. Because she didn’t need the money, she returned the full $30,000 to her IRA on June 15, 2020.

In January 2021, Kendra was surprised to receive a Form 1099-R since she returned the entire amount and knew she shouldn’t owe taxes on it. The Form 1099-R reported a $30,000 distribution from her IRA in Box 1 and $3,000 in Box 4 for tax withholding. Box 7 reports code 7 for a “normal distribution.”

 

How to Report the 2020 Rollover

Since Kendra returned the entire $30,000 withdrawal listed on her tax return, it won’t be included in her taxable income. However, she will need to report both the withdrawal and the rollover on her tax return.

In her case, the full $30,000 will be reported on line 4a of Form 1040, with $0 reported on Line 4b. She will also write “Rollover” next to line 4b. In her case, the $3,000 that was withheld for taxes will still be reported with other tax withholding and will impact her ultimate refund or balance due.

How to Report a Partial Rollover

Example 2: Jane turned 76 in 2020. She also had a $30,000 distribution that she took on February 1, 2020, with 10% tax withholding ($27,000 net after $3,000 for taxes). On June 15, 2020, she returned $12,000 to her IRA instead of the full $30,000.

In January 2021, she received a 1099-R that also reported a $30,000 distribution from her IRA in Box 1 and $3,000 in Box 4 for tax withholding. Box 7 reports Code 7 for a “normal distribution.”

In Jane’s case, she will also report the full $30,000 on line 4a. She will report $18,000 on line 4b ($30,000 original distribution minus $12,000 returned to her IRA in 2020). She will also write “Rollover” next to line 4b. The $3,000 withheld for taxes will still be reported with other tax withholding as usual.

 

Form 5498

Taxpayers who returned some or all of their distribution in 2020 will receive Form 5498. They likely will not receive this form until May 2021—after the April 15 tax filing deadline. This form will be used to report the amount returned to the retirement account in 2020 and verify the rollover reported on the 2020 tax return. The taxpayer does not need to wait (and should not wait) for the Form 5498 before filing their taxes. This is simply an information form so the IRS can verify what was reported on the tax return.

 

Exception from the Usual Rule

It’s important to remember that all of these rollovers are a one-time exception in 2020 from the usual rule. Typically, this type of rollover can only be done once per rolling 365-day period and must be completed within 60 days of taking the withdrawal. Also, RMDs are generally specifically prohibited from this type of rollover.

 

Conclusion

Individuals who returned RMDs in 2020 to avoid having to include the withdrawal in their taxable income will still receive a tax form showing the distribution and will have to report it on their tax return. When reported correctly, the amount returned will be excluded from their income as intended.

 

 

 

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

 

What is The Best Strategy for My Investments During These Unpredictable Times?

What is The Best Strategy for My Investments During These Unpredictable Times?

 

In the weeks following news of the corona virus outbreak, the S&P 500 lost over one third (34%) of its value (between February 19th and March 23rd).

Unemployment figures so far have fallen to 6.7% for the month of November, down from 11.1%  in June, yet the S&P 500 has rallied 61.87% from the March 23rd low (through November 30th).

Markets and the economy seem to have decoupled—should we be worried? Have we seen this before? Let’s look at past major market declines to see how markets and economic measures have acted in the past.

In the 1973–74 market crash, the S&P 500 bottomed on October 3rd, 1974, and started to rally forward while unemployment continued to increase until May 1st, 1975, seven months later.

In the aftermath of the tech bubble bursting in the early 2000s, the S&P 500 bottomed on October 9th, 2002, after dropping 49%; and it began a swift rise while unemployment rates also continued to increase for nine months until June 2003.

In the aftermath of the financial crisis just over a decade ago, the S&P 500 bottomed on March 9th, 2009, after losing over 56% of its value. The markets began a lasting bull market while the news and data grew worse. Unemployment continued to increase through October 2009 (eight months later), GDP continued to decline through June 2009, and bankruptcies of banks continued at record rate throughout 2009 and into 2010. Again, the stock market seemed to have “decoupled” from economic data.

The stock market is considered a “leading economic indicator.” The news and measurements of the economy determine what has happened while the market looks forward to what may be coming.

There is precedence for what is happening with markets rebounding before we see the elusive “light at the end of the tunnel.” History shows that markets have typically rebounded ahead of economic measurements.

So, what is next?

The events that have unfolded in 2020 emphasize how unpredictable the future is and will continue to be. While many knew that the possibility of a global pandemic existed, we had no idea when it would strike, causing the 34% drop in February and March while fear took control of the markets. Further, economic measurements did not signal when markets would begin a recovery. Once again, there was no “light at the end of the tunnel” to signal the 62% market surge from March 23rd through November 30th.

We may not yet be through the worst of this pandemic. Markets may drop again, possibly even further than they did in March. Perhaps the roll out of the vaccine will change things more quickly than previously expected. Maybe the market will continue to grow from here.

The future is fundamentally unpredictable, and the world is always changing; yet the very real effects of fear and greed that each of these cycles elicits is predictable and consistent. We know that fear and greed create chemical reactions in our brains that lead to poor decision making. We need a disciplined framework to lean on to keep from making decisions we later regret.

The best strategy for capturing the highest risk-adjusted returns remains keeping your money invested in a massively diversified portfolio, rebalancing when your allocation deviates from its target. This will have you take advantage of market swings.

At Merriman, our rebalancing sensitivities were triggered in March and April for many portfolios. This generally had us buying stock funds after the big decline with proceeds we pulled from bond funds after they had rallied in response to the fear of current events. Going further back, rebalancing had us trimming from stock funds throughout the more than decade-long bull market that started with the recovery from the financial crisis of 2008 to add to our bond funds, preventing greed from taking those profits back.

Rebalancing has us buying asset classes at low prices when fear can make it difficult, then selling asset classes after they have grown to higher prices when greed can have us wanting more.

Rebalancing is a disciplined framework that helps us with the number one goal of investing: Buy Low, Sell High.

Feel free to reach out to us if you’d like to discuss how to apply rebalancing to your specific situation!

 

Important Disclosure:
Past performance is not indicative of future results. No investor should assume that future performance of the S&P 500 will be similar or equal to previous years/periods.   The S&P 500 is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the U.S stock market.  S&P 500 performance data was obtained from Yahoo Finance. 

Geoffrey Curran Promoted to Principal

Geoffrey Curran Promoted to Principal

Merriman Wealth Management, LLC, an independent wealth management firm with over $2.5 billion in assets under management, is pleased to announce the promotion of Geoffrey Curran, CPA/ABV, CFA, CFP® to principal.

“Geoff’s contribution and dedication to Merriman and our clients has been invaluable as we seek to be the destination for clients and employees who are looking to Live Fully,” said Jeremy Burger, CFA, CFP®, CEO of Merriman. Merriman is proud to offer a path to partnership for those individuals who demonstrate through their contributions a strong commitment to improving the lives of our clients, helping the firm grow and giving back to their communities. With the addition of Geoff, Merriman now has 15 principals.

Geoffrey joined Merriman as a Wealth Advisor in January 2016 after spending three years at TD Ameritrade. Geoff graduated from the University of Tulsa and has earned three of the most distinguished credentials in the industry – CERTIFIED FINANCIAL PLANNERTM professional (CFP®), Certified Public Accountant (CPA), and Chartered Financial Analyst® charterholder (CFA). Geoff is an active member of the South Puget Sound community including serving on the investment committees for the Tacoma Employees’ Retirement System pension and the Greater Tacoma Community Foundation.

Webinar | The Fragility of Retirement in the Coronavirus Era

Webinar | The Fragility of Retirement in the Coronavirus Era

 

Our team at Merriman has been diligently following COVID-19 pandemic updates across the world and in our own communities.

We have also been hearing lots of questions from clients, prospects, friends, and family.

Can I still retire or stay retired? Am I still able to relocate as I had planned? Should I sell all of my stocks now? Should I go to cash? Should I use all the cash I have to buy in? Should I file for Social Security earlier than planned? How will I pay for a hospital stay if I need one?

If you are worried about some of these things too, I have good news.

We have partnered with America’s Retirement Forum (a nationwide non-profit dedicated to providing financial education to adults) to organize a webinar that can help.

Why trust me?

I am the Director of Advisory Services at Merriman Wealth Management and an instructor through America’s Retirement Forum. I have been helping people transition into and navigate retirement for over 20 years, and Merriman has been in the business of educating investors since our founding by Paul Merriman in 1983.

In this webinar I’ll discuss:

  • The short and long-term impacts of the COVID-19 pandemic on the economy
  • Why this recession may be different from what you have lived through before
  • 5 specific steps designed to protect and maximize your retirement income in the middle of a pandemic (yes, you can implement them yourself)
  • 6 strategies and issues to discuss with your advisor

In this time of worry, false information, and uncertainty, make the choice to spend some of your time learning about what you can do to retire well. And the best part is that you don’t have to put your health at risk or leave the house. All you need is 30 minutes and an internet connection to watch this free webinar.

Click here to watch the webinar now!

Don’t delay: Some of the strategies discussed in the webinar are time-sensitive. I would hate for you to miss an opportunity or to take action without having all the facts. We want to help you avoid mistakes and take the proper steps toward securing your financial future.

Stay home, be well, and use this unprecedented time to get informed. Feel free to reach out with any questions.

The Coronavirus & Market Movements

The Coronavirus & Market Movements

 

 

Global equity markets have moved down sharply over the past couple of days. The immediate cause has been the spread of the coronavirus disease 2019 (COVD-19). Capital markets react in real time to aggregate predictions of the future and, on average, price in an overly pessimistic view compared to the ultimate outcome. Currently, there is growing fear of a large drop off in global business activity due to the spread of COVD-19 outside of China.

When we look at the most recent response of the S&P 500 to epidemics over the past 20 years, we see that the market generally has fallen sharply during outbreaks and then rebounded within 6 months. This response follows a pretty typical market pattern where there is overreaction due to uncertainty in the outcome and then a strong bounce back.

The more uncertain the scope of an event, the higher the volatility. The scope and impact of disease outbreaks on economic activity is incredibly difficult to predict. First, there is the uncertainty associated with how the disease will spread and how severely it will impact global citizens. COVD-19 is different than several of the most recent disease outbreaks (SARS, MERS, Zika Virus) in that most patients do not experience severe symptoms and recent data suggests that some people may be infected without showing any symptoms. These characteristics make the probability of a tragic outcome much less but also make it much more challenging to control the spread. Technology and communication have also advanced and are being leveraged to extents not previously possible. How these factors will influence the spread of disease is truly unknowable.

Even if we did know exactly who would be affected and how, the tie between the human cost and the economic cost is indirect at best. Government and business response will vary and may have profound or very little effect.

When there is a very limited data set, it is important not to jump to the conclusion that the past predicts the future. Just because markets have rebounded quickly in the past does not mark this as a buying opportunity. As discussed above, each epidemic is unique, and the ultimate impact is uncertain.

We are well into an economic expansion that is long, by historical standards. Bear markets typically have a trigger that is not necessarily the underlying cause, but more like the straw that breaks the camel’s back. The divide between the performance of US growth stocks and the rest of the global equity markets (US small and value stocks, international and emerging stocks) has reached levels not seen since the late 1990s. At some point, these large divergences have always closed. Whether a decade from now we will look back on COVD-19 as the triggering event for a major shift, no one knows.

Our investment approach, during market pullbacks and always, is to stay true to our disciplined rebalancing strategy. We don’t predict the future direction of the market or specifically buy or sell based on recent market movements. Rather, we consistently monitor your portfolio for under or overweight positions and execute trades to bring the portfolio back to target. Because of the continued relative outperformance of US growth stocks, many clients have reached the point where they are overweight in this asset class, which has resulted in sells in these positions and buys of underweight asset classes in the portfolio, typically bonds.

As the market has swooned, we have also been selling partial or full positions to capture unrealized losses which are used to offset taxable gains and reduce your overall tax bill. The cash generated from the sells is reinvested in a substitute position in the same asset class. Entering a substitute position maintains the target investment objective of the portfolio, keeping you positioned to achieve your long-term financial goals while locking in the tax savings.

We hope that through these times, you can find peace of mind in knowing that we are constantly monitoring your portfolio to ensure the best chance of success in achieving your goals. If you have any questions about activity in your portfolio, please don’t hesitate to reach out.