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CARES Act Key Elements

CARES Act key elements

Mike Larriva highlights CARES Act key elements for individuals.

Late last month, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) written by Congress. It provides $2.2 trillion of relief in many forms for individuals, nonprofits, small businesses and large corporations. I can’t imagine you want to read the behemoth 900-page law. So, here’s a brief overview of CARES Act key elements that may apply to you.

Income tax deadline extension: The federal deadline has been delayed from April 15 to July 15. That includes money due for 2019 taxes and for 2020 first-quarter estimated payments (second-quarter estimated payments are still due June 15, 2020).

Recovery rebates: The IRS will determine rebate amounts based on 2018 or 2019 income tax returns. Individuals who made less than $75,000 in adjusted gross income (AGI) can expect $1,200 (or $2,400 for married people filing jointly); an additional $500 will also be rebated per child under 17 years of age. Rebates will be reduced by $5 for every $100 over the AGI limit. Individuals earning more than $99,000 (or $198,000 for joint filers) will not receive a rebate.

Rebates will be delivered via direct deposit if you received a refund that way in 2018 or 2019. Otherwise, checks will be issued and mailed.

Required Minimum Distribution waiver: RMDs from retirement accounts, for people older than 70.5 years, are being waived for 2020. Unfortunately, the waiver isn’t retroactive for RMDs already taken in 2020. (Learn more about RMDs in this informative video.)

IRA early-withdrawal penalty waiver: Loans and withdrawals from retirement plans for those under 59.5 years of age normally include a 10 percent penalty. That penalty will be waived (up to $100,000) for Coronavirus-related purposes. Withdrawals will still be taxable, though the taxes will be spread over three years versus just the current year. The contribution cap will also be removed for three years for the recontribution of funds withdrawn.

 

By |2020-04-08T15:42:29-07:00April 13th, 2020|Advisors, Current Affairs|

Retirement Savings Legislation 2020

Retirement Savings Legislation SECURE Act 2020The broadest piece of U.S. retirement legislation since the 2006 Pension Protection Act took effect January 1, 2020. The Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed by Congress and signed by President Trump in December. The most immediate impact of this new retirement savings legislation will be felt by those nearing or in retirement.

RMD Age Increase

Prior to SECURE, retirees were required to start withdrawals at age 70½ years from traditional Individual Retirement Accounts (IRAs) or employer-sponsored retirement plans like 401(k)s. For those who haven’t reached 70½ by the end of 2019, the Required Minimum Distribution (RMD) now  must begin at age 72. That means 18 more months to grow investments before taking distributions and paying taxes.

The change also provides two additional years for Roth IRA conversions without having to worry about the impact of RMDs. Unlike a traditional IRA, Roth withdrawals are tax-free as long as you meet certain requirements and there are no RMDs during your lifetime. The general goal of a Roth conversion is to move taxable money from an IRA into a Roth at lower tax rates today than you expect to pay in the future.

Estate Planning Snag

A drawback of SECURE is removal of so-called “stretch” and “pass-through” provisions for retirement accounts beneficiaries. Formerly, if an IRA or 401(k) was left to a non-spouse or trust, the beneficiary could typically stretch out the tax benefits of the account over an extended period. With the new retirement savings legislation , however, beneficiaries will have to distribute the entire inherited account within 10 years after the owner’s death (there are a few exemptions).

Accelerated distributions mean more taxable income at potentially-higher rates. Such income may also affect means-tested Medicare premiums and Medicaid benefits of low-income retirees or individuals with special needs.

We encourage you to talk with your financial planner about reviewing your retirement accounts and estate plans to ensure they still align with your goals and that you’re taking full advantage of the new opportunities.

By |2020-01-17T09:47:35-07:00February 10th, 2020|Estate Planning, Retirement, Taxes|

Secondary Education Tax Credits

In the past, I’ve written about Arizona tax credits that support local schools and nonprofits. Such credits enable you to make charitable donations using money you would otherwise pay in Arizona income taxes. But did you know there are also a number of federal income tax credits that benefit you directly with a dollar-for-dollar reduction in your tax bill? That means a tax credit valued at $1,000 actually lowers your tax bill by $1,000. Here are details about two secondary education tax credits that are especially advantageous.

American Opportunity Credit

This allows you to claim the first $2,000 you spend on undergraduate expenses for tuition, books, equipment and fees. It also lets you claim 25 percent of the next $2,000 of expenses (for a total of $2,500). Parents can claim the credit if they paid for the student’s education expenses and that student is listed as a dependent on their tax return. Otherwise, the student can claim it. Full or reduced credit is given if your modified adjusted gross income (MAGI) was less than $80,000 or $90,000, respectively ($160,000 and $180,000 for joint filers).

This credit is especially valuable for students because it’s refundable. That means you can still receive 40 percent of its value (up to $1,000) and receive a tax refund even if you earned no income in 2019 and owe no income taxes. Because this credit is available for a maximum of four years, the largest benefit will be years when there are $2,000-to-$4,000 of expenses.

Lifetime Learning Credit

This is ideal for graduate students or anyone taking classes to develop new skills, even if you already claimed the American Opportunity Credit in the past. It’s available to undergraduate, graduate and non-degree or vocational students; and there’s no limit on the number of years it can be claimed.

Students can claim 20 percent of money paid toward tuition, fees, books and supplies needed for coursework, up to $2,000. The credit has a lower MAGI threshold ($67,000 for individuals, $134,000 if filing jointly) and is not refundable.

Read www.irs.gov/credits-deductions-for-individuals to learn more, or talk with your tax advisor about whether you qualify for these or other beneficial tax credits.

By |2019-11-20T08:34:42-07:00November 25th, 2019|Financial Planning, Taxes|

Consistent Saving is a Vital Habit

About 58 percent of Americans have less than $1,000 in personal savings, according to a recent survey by gobankingrates.com. If we think about all the federal employees impacted by the current government shutdown, that means six out of 10 will likely experience financial difficulty due to this interruption in their incomes and lack of savings. A government shutdown is rare. Still, it is a powerful reminder to us all to be prepared for unexpected loss of income or large expenses. Consistent saving is a vital habit.

Having an emergency savings account (for things like a broken water heater, automobile repairs or unplanned medical bills) can save you a lot of anxiety. It can save you hundreds of dollars, as well, since late fees for credit cards, car loans or utility bills often run $30 or so per month. Having an emergency reserve will also help you maintain a good credit score during challenging financial times.

When speaking to young adults, I often recommend they keep $1,000 to $1,500 as a minimum target for a checking account. Adults with children or additional financial responsibilities should set a higher reserve target. The savings not only helps in an emergency, it helps you avoid monthly bank fees that can add up quickly. If you can set aside $20 per week (only about $3 a day), you will have accumulated $1,000 by the end of the year.

Once you have your emergency fund in place, you can focus on your retirement savings. Setting up an automatic deposit from your paycheck into a retirement account is one of the easiest ways to save money. That money never reaches your checking account, so it is less likely to be spent. For 401k contributions, start with 5 percent of your salary or enough to receive any company-matching contributions. After a few months, you will hardly miss the smaller amount going into your checking account.

Consistent saving is a vital habit that lasts a lifetime. Taking that first step is important. According to US Census data, the median household income was $60,336 in 2017. For a typical 40-hour work week at that income, $5 is equivalent to about 10 minutes. Wouldn’t investing just 10 minutes (or $5) a day be a worthwhile investment in yourself?

By |2019-08-14T13:59:46-07:00February 4th, 2019|Current Affairs, Financial Planning, Retirement|

Understanding Liability Insurance

Liability insurance can protect you in the event of serious injury, property damage or other economic liability. Thus, understanding liability insurance is an important piece of your personal financial plan.

One of the most common types of liability insurance is bodily injury and property damage for your auto coverage. It provides payment to others when you are the driver at fault in an accident. Arizona has minimum levels of coverage of $15,000 bodily-injury liability per person, $30,000 per incident (two or more people) and $10,000 for property damage ($15k/$30k/$10k). If someone has a $50,000 medical claim and you only have the minimum $15,000 in bodily injury coverage, they may pursue you for the remaining costs. More typical levels of coverage are $100k/$300k/$100k.

Another common type of liability protection is a vital component of homeowner’s insurance. Coverage typically starts at $100,000; however, to protect your family’s assets, $300,000 or more is advisable. If a guest or contractor slips and falls on your property, medical bills and lost wages can quickly add up to more than $100,000. Do you have a dog, pool or trampoline? Claims from these risks are common for pain and suffering, as well as for medical bills.

An umbrella liability policy is less common, though strongly recommended. Also known as a personal liability policy, it complements your auto and homeowner’s insurance by extending liability coverage where the underlying policies end. A car accident resulting in severe injuries can quickly exceed $500,000 in medical bills, property damage and lost wages, not to mention claims for pain and suffering. Any amount not covered by your auto policy could cause an action to be brought against you and your family for your personal assets (bank accounts, cars, home equity, wages). With a $1 million umbrella liability policy, you would have more sufficient coverage. In addition, the insurance company would pay for an attorney to represent you and negotiate with the other party.

More generous umbrella policies may also cover claims such as false arrest, libel or slander (such as a negative online review). Premiums for umbrella policies typically range from $250 to $500 per year for an additional $500,000 in liability protection.

By |2019-08-14T13:59:49-07:00July 1st, 2018|Financial Planning, Insurance|