Financial Planning Updates
In times of uncertainty it often feels like there are things out of our control. Fortunately, there are updates in the financial planning and organization area that are within your control to be aware of to maybe improve your situation if you take the time. We will try to keep you updated as much as possible. A few recent items that may be important to know related to your finances:
Tax Filing Deadline Changes:
Announced last week, the tax filing deadline for all Americans has changed from April 15 to July 15 for both form filing and payment of any taxes owed. People expecting a refund should still file ASAP and the IRS is actively processing everything that comes in. California has also extended filing to July 15. Other state’s info can be found here.
IRA & Roth IRA Contributions for 2019 are also being extended for the first time I’m aware of past the mid-April deadline with the caveat to check with custodians to make sure they are processing. I’ve communicated with our main custodians (including Pershing, TD Ameritrade, American Funds, etc.) and they have confirmed that they are working on the changes to their systems that would be necessary to make it happen. My recommendation would be that unless you just don’t have it available yet, I would focus on trying to get any 2019 contributions in prior to April 15 just to avoid any system issues. As a reminder, IRA and Roth IRA contributions are maxed at $6,000 for those under 50 and $7,000 for those 50+. This extension applies to HSA contributions as well, for those who have eligible insurance, with limits of $3,500 for singles and $7,000 for families, with a $1000 catch up for those age 55+.
Stimulus Package (or more accurately Recovery Package):
Passed in the Senate, then Congress and signed by the President on Friday. There is a lot that still needs to be reviewed and we can share more impacting items as details are clarified.
Many Americans will receive direct cash payments – “The Senate bill will provide a one-time $1,200 check for an individual making up to $75,000 per year or $2,400 for couples earning less than $150,000. After that, it will be scaled down until it reaches a $99,000 income threshold for an individual or $198,000 for a couple and then phased out altogether. It also provides an additional $500 per child (which could extend the income caps further - $218K for a married couple with 2 kids before completely phasing out).” (The Hill).
Checks will not be counted as taxable income. You will not need to file for payment if you are eligible. They will automatically send a check or via ACH if you have a bank account on file. It will be based on your most recent return, (so 2018 if you have not filed a 2019 return). For some who are on the fence you may want to hold off on filing your 2019 taxes. If you . There are also questions about how quickly they will get the money out. The stated goal is within 3 weeks for ACH, but the concerns about an already spread-thin IRS verifying who is eligible and who isn’t sounds challenging. Paper checks may take a month or so. If you’re not eligible based on 2018 or 2019 income it sounds like you may be eligible after you file 2020 taxes if an income reduction were to bring you into eligibility.
I know a few of you who I’ve talked with have temporarily lost jobs and others are concerned about the possibility. Unemployment benefits will increase significantly, adding up to an extra $600 per week to benefits for up to 4 months. There was some stirring about a drafting error that made some senators realize that benefits payable could theoretically be more than 100% of what some people were making while working, which could lead to some unintended consequences of the legislation making unemployment very attractive for some. This appears to still be the case after it was not changed, but we will get more clarity. Expansions of eligibility sound like it will somehow include self-employed, part-time workers and gig economy participants. I expect this to be full of confusion for determining eligibility. Here is the site for more info if you or someone you know may qualify.
There are also some benefits to small business owners to be eligible for 50% refundable payroll tax credits on wages paid during the crisis of up to $10,000. Again, a lot of the details will need to be clarified, but it sounds like you will need to demonstrate a substantial loss of revenue (50% from same quarter last year) to be eligible.
There were a lot of other items added for consideration that didn’t have much of a connection to the current crisis at hand. Most of those were removed, but some remained as concessions for bipartisan support. It’s always concerning when things have to get thrown together so fast with so many widely varying ideals and objectives competing for agendas. I hope that there aren’t too many dramatic oversights and I really hope that the vast majority gets to those businesses and individuals who need it most, but I expect to see a lot of fraudulent attempts to access this gigantic treasure chest of resources. One thing is for sure, it has become a very expensive responsibility for taxpayers for years to come. It would seem that tax rates are unlikely to be as low as they are now in the years ahead. Taking advantage of Roth conversions of Traditional IRA’s during these lower tax rate years may be an advisable strategy for people with the resources to cover the taxes, especially if this becomes a lower income year for you. Please consult your tax advisor if you feel this may be an option for you.
*This material is for general informational purposes only and is not intended to be a substitute for specific professional financial, tax or legal advice. Individual circumstances may vary. If converting a traditional IRA to a Roth IRA, you will owe ordinary income taxes on any previously deducted traditional IRA contributions and on all earnings.