Why We Grow Happier With Age

Contributed by: Sandra Adams, CFP®

Having had a “milestone” birthday at the end of last year, I came across a book recently that caught my attention. The Happiness Curve: Why Life Gets Better After 50 by Jonathan Rauch seemed like a book that I had to read – who wouldn’t want to know how and why life was going to start getting better!?!  I was completely intrigued by this book. It is backed by the personal experience of the author, actual case studies, and long-term social research.  So, what did I learn?

Research indicates that life satisfaction declines in your forties. Despite being dubbed as having a “midlife crisis”, your forties are less of a crisis and more of a sense of despair. Why could this happen?

• We realize that we’re not going to achieve everything we once imagined

• We compare ourselves to others who’ve achieved more and question our self-worth

• We lack gratitude and feel shame or embarrassment

However, by age 50 (or shortly thereafter) our “sour” mood changes and we begin to feel more life satisfaction. As each decade passes, our happiness “ranking” gets even higher.

• We become less focused on our own goals and become more focused on serving others

• We accept our life and focus on personal relationships instead of external achievements

• We stop comparing ourselves to others and focus more on our own internal satisfaction

Key takeaways:

• Be self-aware of the psychology behind your feelings

• Know that the “midlife crisis” isn’t forever and better times are ahead

• The future is an opportunity to live our happiest and most socially satisfying years

For those who are focused on the negatives of aging such as an ailing body or a failing mind, I challenge you to pick up The Happiness Curve to get a different perspective on your future retirement years. What you learn just might surprise you! If you’d like to have a conversation about this topic or additional topics around retirement or longevity planning, feel free to contact me at sandy.adams@centerfinplan.com.

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

COVID‐19 and Your Money: New Risks and Simple Solutions

Contributed by: Center for Financial Planning, Inc.®

Should pre‐retirees (and their advisors) take a new look at retirement income? It’s no secret that COVID‐19 has greatly impacted the world, but let’s talk specifically about its impact on retirement planning. Partner and Senior Financial Planner Nick Defenthaler, CFP®, RICP® provides valuable insight in this Q+A.

Q. Does the COVID‐19 crisis (market decline and job loss) mean retirement is more in peril than ever before? Some advisors tell clients to "work longer" to achieve their desired retirement outcome, but has that advice quickly become outdated due to job cuts?

A. Unfortunately, many retirement plans will be pushed out by the pandemic. Even in a diversified 60% stock and 40% bond portfolio, many clients were down just north of 20% around mid‐April. Thankfully, the market has recovered quite a bit since its lows in March. However, for those closely approaching retirement, this highlights the danger of the “sequence of returns risk”…aka having crummy market returns in the year or so leading up to retirement or shortly after transitioning into retirement. Working longer is still good advice, in my opinion, but what most advisors don’t communicate is that working longer doesn’t have to mean working full‐time longer. Over the past 5 years, I’ve seen an uptick with clients “phasing into retirement”, which essentially means working on a part‐time basis before stopping work completely. Most clients largely underestimate how big of a positive impact on working and earning even $15,000/yr for several years can have on the long term sustainability of their portfolio.

Q. Does the 4% withdrawal rule make sense?

A. Yes, I believe it does. Keep in mind, it’s still a very conservative distribution rate for those with a 30‐35 year retirement time horizon, especially if the client is comfortable dipping into principal. Right now, I think the biggest risk of the 4% rule is our low interest rate environment and the “sequence of returns risk” mentioned previously. However, they both can be greatly mitigated through prudent planning and investment choices in the “retirement risk zone” which I would define as 3 years leading up to retirement and 3 years post‐retirement.

Q. Should pre‐retirees be looking at guaranteed sources of income, such as annuities?

A. Annuities should be evaluated for almost all retirees. The keyword here is evaluated and not implemented. Annuities have a bad reputation by some very prominent faces you see in the media and rightfully so for a myriad of reasons. But the reality is simple, guaranteed income is proven to make human beings feel happier and more secure, especially in retirement and there are only a few ways to get it. Through the government (Social Security), pensions (which are becoming extinct), and annuities. When using annuities for clients I work with, it’s only for a portion of their overall spending goals, perhaps 10‐20% of their cash flow needs. That will not be the right fit for everyone, but it should be part of the due diligence process when evaluating the proper retirement income strategy for a client. In times like this, you won’t find too many clients who are upset that they transferred risk from their portfolio to an insurance company in the form of an annuity that offers guaranteed income.*

Q. Do you have an interesting story about a client who changed their strategy?

A. I work with a couple who recently faced a hard stop working full‐time for several reasons, one being health‐related. Their retirement income goals are a bit of a stretch considering their accumulated portfolio. Our plan was for husband and wife (both 62) to work part‐time starting this year to be eligible for health insurance and receive some income until at least 65. This would dramatically shrink their portfolio distribution rate in the early years of retirement where the “sequence of return risk” is very real. Unfortunately, both of their jobs were affected by the pandemic and the possibility of working part‐time for several years is now slim to none. The clients own their home free and clear and have no plans whatsoever to move in the future. This ultimately led them to explore a home equity conversion mortgage (HECM) which is a type of reverse mortgage insured by the Federal Housing Administration. Over the past decade, there have been dramatic improvements in how these loans are structured to protect borrowers and surviving spouses. It can be a phenomenal financial planning and retirement income tool as researched by well‐respected thought leaders in our profession such as Wade Pfau and Michael Kitces. The HECM is allowing the clients to fully retire right now and enjoy time with their grandkids. They can now step away from jobs that have been extremely stressful for them over the years. Helping them find such a solution to still achieve their goal in this environment has been extremely rewarding!

Nick Defenthaler, CFP®, RICP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® Nick specializes in tax-efficient retirement income and distribution planning for clients and serves as a trusted source for local and national media publications, including WXYZ, PBS, CNBC, MSN Money, Financial Planning Magazine and OnWallStreet.com.

*Guarantees are based on the claims paying ability of the insurance company. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision. This material is provided for information purposes only and is not a complete description of the securities, markets, or developments referred to in this material. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This information is not intended as a solicitation or recommendation to buy or sell any security referred to herein. Raymond James Financial Services, Inc. does not provide advice on mortgages.

SECURE Act: Potential Trust Planning Pitfall

Contributed by: Josh Bitel, CFP®

Does the SECURE Act affect your retirement accounts?  If you’re not sure, let’s figure it out together.

Just about 2 months ago, the Senate passed the SECURE (Setting Every Community Up for Retirement Enhancement) Act.  The legislation has many layers to it, some of which may impact your financial plan.

One major change is the elimination of ‘stretch’ distributions for non-spouse beneficiaries of retirement accounts such as IRAs. This means that retirement accounts inherited by children or any other non-spousal individuals at least 10 years younger than the deceased account owner must deplete the entire account no later than 10 years after the date of death. Prior to the SECURE Act, beneficiaries were able to ‘stretch’ out distributions over their lifetime, as long as they withdraw the minimum required amount from the account each year based on their age. This allowed for greater flexibility and control over the tax implications of these distributions.

What if your beneficiary is a trust?

Prior to this new law, a see-through trust was a sensible planning tool for retirement account holders, as it gives owners post-mortem control over how their assets are distributed to beneficiaries.  These trusts often contained language that allowed heirs to only distribute the minimum required amount each year as the IRS dictated.  However, now that stretch IRAs are no longer permitted, ‘required distributions’ are no longer in place until the 10th year after death, in which case the IRS requires the entire account to be emptied.  This could potentially create a major tax implication for inherited account holders.  All trusts are not created equally, so 2020 is a great year to get back in touch with your estate planning attorney to make sure your plan is bullet proof.

It is important to note that if you already have an IRA from which you have been taking stretch distributions from, you are grandfathered into using this provision, so no changes are needed.  Other exemptions from this 10-year distribution rule are spouses, individual beneficiaries less than 10 years younger than the account holder, and disabled or chronically ill beneficiaries.  Also exempt are 501(c)(3) charitable organizations and minor children who inherit accounts prior to age 18 or 21 (depending on the state) – once they reach that specified age, the 10-year rule will apply from that point, however.

Still uncertain if the SECURE Act impacts you?  Reach out to your financial advisor or contact us. We are happy to help.

Josh Bitel, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.® He conducts financial planning analysis for clients and has a special interest in retirement income analysis.

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Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

When Stock Markets Fall 20%

Contributed by: Nicholas Boguth

We are supposed to know that stocks are risky, but that doesn’t make holding onto them any easier during turbulent times like these. Hopefully this post provides some optimism for anyone invested in stocks, both domestic and international.  

What happened if you invested $1 in a stock market after it crashed 20% or more?

I took 15 stock indexes representing the largest economies in the world and found the date when they fell 20% from an “all-time high” like the U.S. markets did this past March. I counted 68 of these drawdowns in Morningstar’s database. Below is the performance of $1 over the 10 years following each drawdown.

This is a hypothetical example for illustration purposes only. Investors cannot invest directly in an index.

In this example, blue lines ended positive. Red lines ended negative. $1 invested after a 20% drawdown turned positive 64 out of the 68 times. There were only 4 negative time periods (Hong Kong & Italy in ’73, Brazil & Italy in ’08). In the worst 10 year period, the index was down 28% and ended at $0.72. The best instances returned over 600%, and even all the way up to 1,100%!

The economy is tanking, should I get out of the market?

Every investor has thought about this question at least once, probably multiple times, during his or her lifetime. I’m not going to answer it for you here, because there is no universal answer. Investing is not one-size-fits-all. Time horizon, spending goals, cash flows, risk tolerance, and your entire financial plan will affect the decision. We work with our clients to ensure that they have a plan in place before it is too late. If you are unsure of your plan, or need to create one, feel free to reach out to us by phone, email, or on our social media.   

Source: Morningstar Direct. Indexes and dates shown below. Total return, monthly data.

Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance doesn't guarantee future results. Investing involves risk regardless of the strategy selected, including diversification and asset allocation. Holding investments for the long term does not insure a profitable outcome.

International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.

Nicholas Boguth is a Portfolio Administrator at Center for Financial Planning, Inc.® He performs investment research and assists with the management of client portfolios.

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A free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index consists of the following 24 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. With Net Dividends (Total Return Index): Net total return indices reinvest dividends after the deduction of withholding taxes, using (for international indices) a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the United States & Canada. As of June 2007 the MSCI EAFE Index consisted of the following 21 developed market countries: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. (Total Return Index) - With Net Dividends: Approximates the minimum possible dividend reinvestment. The dividend is reinvested after deduction of withholding tax, applying the rate to non-resident individuals who do not benefit from double taxation treaties. MSCI Barra uses withholding tax rates applicable to Luxembourg holding companies, as Luxembourg applies the highest rates. The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI EAFE Index consists of the following 21 developed market country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. The MSCI Hong Kong Index is designed to measure the performance of the large and mid-cap segments of the Hong Kong market. With 43 constituents, the index covers approximately 85% of the free float-adjusted market capitalization of the Hong Kong equity universe. The MSCI Japan Index is designed to measure the performance of the large and mid-cap segments of the Japanese market. With 323 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Japan. The MSCI Germany Index is designed to measure the performance of the large and mid-cap segments of the German market. With 59 constituents, the index covers about 85% of the equity universe in Germany. The MSCI United Kingdom Index is designed to measure the performance of the large and mid-cap segments of the UK market. With 96 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in the UK. The MSCI France Index is designed to measure the performance of the large and mid-cap segments of the French market. With 77 constituents, the index covers about 85% of the equity universe in France. The MSCI Italy Index is designed to measure the performance of the large and mid-cap segments of the Italian market. With 24 constituents, the index covers about 85% of the equity universe in Italy. The MSCI Canada Index is designed to measure the performance of the large and mid-cap segments of the Canada market. With 89 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Canada. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index.

Beware Of This COVID-19 Scam

Contributed by: Nick Defenthaler, CFP®, RICP®

During times of uncertainty, it is common for adversaries to take advantage of global headlines in an attempt to get people to click malicious links, enter credentials on fraudulent websites, volunteer their personal information, download malicious software or fall for common interpersonal scams.  

Emerging Trend: Economic Impact Payment Scams

Congress recently passed a COVID-19 relief and stimulus package (click here to learn more about the “CARES Act”). As with other aspects of the COVID-19 pandemic, fraudsters are exploiting the relief and stimulus efforts to victimize the public. The latest scams optimize on these stimulus relief initiatives like Economic Impact Payments to trick individuals into providing financial and other personal information.

If you receive calls, emails, or other communications claiming to be from the Treasury Department, the IRS or other government agency offering COVID-19 related grants or stimulus payments in exchange for personal financial information, an advance fee, or charge of any kind, including the purchase of gift cards; do not give out your personal information.

Economic Impact Payment Scam Red Flags

• The use of words like "Stimulus Check" or "Stimulus Payment." The official term is Economic Impact Payment.

• The caller or sender asking you to sign over your Economic Impact Payment check to them.

• Asking by phone, email, text or social media for verification of personal and/or banking information, insisting that the information is needed to receive or speed up your Economic Impact Payment.

• An offer to expedite a tax refund or Economic Impact Payment faster by working on the taxpayer's behalf. This scam could be conducted by social media or even in person.

• Receiving a 'stimulus check' for an odd amount (especially one with cents), or a check that requires that you verify the check online or by calling a number.

Pandemic-Related Phishing Attempts

COVID-19-related email scams have become the largest collection of attacks united by a single theme. Adversaries continue to pose as the World Health Organization (WHO), the Centers for Disease Control and Prevention (CDC), and now government agencies like the IRS to obtain information. General COVID-19 red flags include:

• Urging people to click on links regarding “safety tips” to prevent sickness and to “view new cases around your city.”

• Posing as the CDC, WHO or other well-known health organizations.

• Posing as a medical professionals requesting personal information.

Protecting Senior Citizens

• ·Under normal circumstances, seniors are more likely to fall victim to scams. Preying on fear and isolation, fraudsters have no reservations about trying to take advantage of this section of the population even in the most desperate times.

• Additionally, as social distancing continues to be necessary, experts worry that social isolation will lead to depression, anxiety and ailing health for some seniors. These could lead to both cognitive decline and the desire to find social interaction online—easily leading senior and at-risk clients to fall victim to both COVID-19 scams and other common online, interpersonal or romance scams.

Security Recommendations

We recommend that you take the following actions if you receive a suspicious email or phone call:

• If you believe an email could be suspicious, do not click any links, reply or provide any information.

• Always confirm who you are receiving emails from. Thoroughly check the email sender and domain names to be sure that they are accurate before giving out any personal details or performing any requests.

• Be aware of common red flags such as a sense of urgency, posing as a person of authority, or even uncommon language coming from a person you speak to every day.

Nick Defenthaler, CFP®, RICP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® Nick specializes in tax-efficient retirement income and distribution planning for clients and serves as a trusted source for local and national media publications, including WXYZ, PBS, CNBC, MSN Money, Financial Planning Magazine and OnWallStreet.com.

How To Invest In A Bear Market

Contributed by: Center Investment Department

In a Q+A, our Director of Investments Angela Palacios, CFP®, AIF® provides valuable advice on the dos and don’ts of investing in a bear market. A “bear market” is when assets fall at least 20% or more from their high. We are currently facing a bear market.

What is a bear market and what triggers them? 

A variety of situations can cause a bear market. They can be event-driven, which explains the current bear market. A black swan event like COVID-19 or a shock in commodity prices like the price war on oil can cause bear markets that lead to recessions. In the case of late 2018, that brief bear market was driven by the trade-war escalation. This example did not lead to a recession. Financial imbalances like high inflation, increasing interest rates from the Federal Reserve, or banks being too leveraged (like in 2008) are all issues that can trigger a bear market and lead to an eventual recession.   

What's good/bad about investing in a bear market? 

Data from historical bear markets indicate that they are excellent investment opportunities, however, it is the most difficult time to invest. Bear markets allow us to tax-loss harvest to offset future capital gains, ultimately reducing our tax bills. We can rebalance out of positions that may not be our highest conviction investing ideas that we have had to hold on to due to high capital gains embedded in those positions.

What investments are best for a bear market and why?

We believe “Core Fixed Income” is often the best strategy to offset the downside risk from equities. These include positions like U.S. Treasuries and High-Quality Corporate debt. Generally, when equities are going down, investors are buying these types of investments. Cash is also a good insulator during times like this. Even though interest rates are low, there is no substitute for its safety. It is very important to always have your next 6-18 months of cash needs set aside so you don’t have to liquidate during times of market turmoil.

What should a brand new investor know about building a portfolio in a bear market? Is it a good time for newbies to enter the market while prices are down? 

Start building a portfolio regardless of whether we are in a bull market or a bear market. The old saying goes, “Time in the market is more important than timing the market”. Most investors save systematically throughout their lives rather than investing in one lump sum. We save every month through our 401(k) deferrals or every year when we get that bonus from work. Dollars go farther in bear markets because the shares of the mutual fund you are buying are now on sale. Investing is the only time in life when buying something on sale doesn’t feel good, but it should if you have a long time horizon to save.

What advice do you have for managing a portfolio in a bear market and when it begins to turn bullish again? For example, how do you manage risk and asset allocation to stay on target with your goals? 

The investing strategy and financial planning goals should be developed during quieter times. Thinking ahead to how you should react during times like this is crucial because in the moment our emotions are very difficult to overcome. A rebalancing strategy also needs to be developed at the same time you are developing your investment strategy. It is a concept that sounds simple but can be very easy to neglect. When markets are doing great and there is very low volatility (like January of this year), you may be tempted to let your best-performing investments run just a little bit longer before rebalancing…meaning you hold your stock positions rather than rebalancing into bonds. In other years that may have been fine, but this year it was not. So, having thresholds around how much stock and bonds you have in your portfolio can take the guesswork out of when to rebalance. That is extremely important at the depths of a bear market because one of the best ways to help your returns coming out of a bear market is simply to rebalance back to your target allocation of stocks and bonds. When markets are down, this means selling bonds and buying stocks.

We hope you found this informative. If you have additional questions, please contact your advisor!

This material is being provided for information purposes only. Past performance doesn't guarantee future results. Investing involves risk regardless of the strategy selected, including diversification and asset allocation. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability.

COVID-19, The CARES Act, And Divorcing Clients: A Call To Action For Divorce Professionals

Contributed by: Jacki Roessler, CDFA®

Are divorcing couples more susceptible to becoming sick with a virus than the rest of us? According to the Holmes and Rahe Stress Scale[1], a research study that measured the correlation between stressful life events and future illness, divorce is second only to the death of a spouse as a predictor of future health problems. Viewed through the lens of our current social, health and economic environment, this insight resonates particularly strong. As I write this in early April 2020, Family Courts around the Country remain closed (other than for essential emergency matters), however, several divorce-related issues can’t wait. There are also some unique planning opportunities offered through the newly passed CARES (Coronavirus Aid, Relief and Economic Security) Act that may be appealing to divorce clients. 

First Things First: Cash Flow Needs

One of the most important (and revealing) questions to ask clients right now is “how are you managing with your cash flow?” For those who are dependent on temporary support to pay their bills, this is a good time to discuss cash flow priorities and make sure there haven’t been any changes to the status quo. For some that may mean re-directing outflows to expenses that take the highest priority such as food, mortgage payments, and utilities. For example, take a hypothetical client Anne...I had a virtual meeting with my client and her attorney. Anne revealed she was feeling panicked about her dwindling cash reserves. Concerned about her mounting legal fees, she had been using her temporary support to make payments to her lawyer. Anne’s attorney let her know their firm was suspending the accrual of interest charges on outstanding legal fees during the current crisis. She also directed her to pay legal fees from a joint marital account and use her income for her family’s living expenses. Similarly, now is not a good time for clients to add to their credit card balances. Discretionary spending for most clients should be reduced or eliminated if at all possible during this time of economic uncertainty. 

For clients who are concerned about low liquidity in their estate, they may want to discuss liquidating securities or mutual funds in post-tax brokerage accounts to free up cash. Although it’s never the best idea to sell into a down market, in certain cases, it may be necessary. Clients should be advised to consult with their financial and/or tax advisor to determine the most tax advantageous way to liquidate securities while taking their overall long-term investment strategy and financial goals into consideration. 

Other clients may not have any brokerage accounts to liquidate despite their concerns about short term cash needs. In fact, for the vast majority of my current open divorce cases, the parties have the bulk of their assets tied up in retirement accounts and real estate equity; neither of which can be easily accessible for cash needs. There are two provisions of the newly passed CARES Act that may help clients who are looking for creative ways to free up cash.

CARES Act changes to 401(k) loan rules

Before the passage of the CARES Act in March 2020, federal law provided a means for employees to access the money in their retirement accounts for short term personal loans. Qualified plan sponsors could allow employees to borrow up to $50,000 or 50% of their total account value (whichever was less). The benefit of a 401k loan is that it can be quickly and easily accessed, there aren’t any long approval delays and the borrower pays the money back to him or herself. Loans aren’t treated as taxable distributions and the employee immediately starts to pay the loan back through (after-tax) payroll deductions.

The CARES Act expanded the existing program by increasing the loan limit to $100,000 or 100% of the account balance (whichever is less). This may be a valuable tool for divorcing clients to access money during the divorce, as long as both parties understand the money must be repaid. This opportunity is time-sensitive as the increased limit is only available through September 22, 2020. 

There are other pitfalls to parties taking out loans that attorneys and financial professionals should discuss with their clients. Let’s suppose, for example, Jane and Jack are in the process of divorce. Jack is feeling anxious about his job as his employer is considering potential layoffs. Without conferring with his attorney, Jack initiates a loan of 100% of his 401(k) balance to pay his temporary spousal and child support to Jane. Jane’s signature isn’t required for the loan and he takes it without her knowledge or agreement. Will this loan be considered dissipation of the marital estate, a separate debt of Jack’s alone or will it be viewed as a legitimate marital debt the parties will share? It’s certainly something he needs to discuss with his attorney before he takes any action.

Even if the parties agree that a 401k loan is a good idea for both of them in the short term, Jack needs to understand the potential risks. If his employer is forced to lay him off, for example, the loan would need to be repaid within the tax year it is withdrawn. If it isn’t repaid, it's treated as taxable income and Jack would also owe an additional 10% penalty for early withdrawal since he’s under 59 ½ years old.

CRD-Coronavirus Retirement Distributions

The other option the CARES Act provides is a CRD (Coronavirus Retirement Distribution) for those who have the virus, have a spouse or dependent with the virus, or those who experienced financial hardship due to the virus. As of now, it seems that what qualifies as a “financial hardship” will be loosely interpreted and monitored. The maximum withdrawal amount is $100,000 per person and can be from an IRA, 401k, 403b, or other qualified retirement annuities as long as the plan sponsor allows it. Additionally, taxes on the withdrawal can be spread out over 3 years and will not be subject to the 10% penalty for early (pre age 59 ½) withdrawals.

For many divorcing couples, this might provide a planning opportunity to free up liquid assets within the marital estate. It’s important to note that to qualify, distributions must be made before December 31, 2020. Liquid assets may be needed for one or both parties for their cash reserves, to pay legal fees, moving costs or other one-time expenses. They also may be needed to buy-out all or a portion of alimony in certain cases. 

One important note for couples who will be filing separately in 2020 is that any distribution will be treated as taxable income to the person who withdraws the money. For example, suppose Jack and Jane want to free up $75,000 in cash from their combined retirement accounts. Although they both have separate retirement accounts, they decide it makes sense to take a $75,000 CRD from Jane’s IRA. They plan to split the net proceeds between them and they want to minimize taxes. Jane who plans to file as Head of Household in 2020 and whose sole income will be child support and alimony will be in a low tax bracket for the next several years. Jack predicts he’ll be in a high tax bracket. Jane will spread the tax liability on the distribution out over 3 years, thereby greatly minimizing (possibly even eliminating) the tax liability on the distribution. 

Although the tax liability can be spread out over 3 years, it’s still important to note that it’s best to leave retirement assets invested in tax-deferred vehicles, if at all possible. Of course, Jane and Jack should also be advised to consult with a qualified tax advisor about their particular situation before taking any distributions.

In stressful times such as these, it’s easy to forget that the new world we’re living in may provide unique planning opportunities. Now, more than ever, divorcing clients need the professionals they work with to reach out to them with creative ideas, suggestions, and re-assurance. 

[1] Holmes and Rahe (1967) – used a self-report measure with their Social Readjustment Rating Scale (SRRS) which looked at the events which had occurred in a person's life and rates their impact.

Jacki Roessler, CDFA®, is a Divorce Planner at Center for Financial Planning, Inc.® and Branch Associate, Raymond James Financial Services. With more than 25 years of experience in the field, she is a recognized leader in the area of Divorce Financial Planning.

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The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Examples used are for illustrative purposes only.

What Is the Paycheck Protection Program?

Contributed by: Josh Bitel, CFP®

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. One major component of the CARES Act is the Paycheck Protection Program, a program intended to provide support to small businesses as they ride out the difficult economic times and encourage retaining employees, or rehiring those who have been laid off.

The Paycheck Protection Program will provide up to $349 billion in forgivable loans to small businesses to help pay their employees during this time. The terms of the loan will be the same for everyone who applies. These loans will be forgiven as long as the following conditions are met:

• Loan proceeds are used to cover payroll costs, mortgage interest, rent, and utility costs over the 8 weeks for which the loan was made. (The term “payroll costs” are defined as compensation, capped at $100,000 on an annualized basis for any employee.)

• Employees are maintained with the same compensation levels.

Who is eligible?

Any business with 500 or fewer employees, including nonprofits, sole proprietors, and independent contractors. Some businesses with more than 500 employees may be eligible, contact the SBA for more information.

How much can a small business get?

Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. The government has allocated $349 billion toward this program, which may not be sufficient to satisfy every business in need. While they could elect to increase this amount, it is best to apply for the loan as soon as possible. This loan is available until June 30, 2020.

When can you file?

• Starting April 3rd, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.

• On April 10th, independent contractors and self-employed individuals may apply.

What are the loan terms?

Loans will have a fixed interest rate of 1%, and payments are deferred for 6 months. Interest will accrue over this 6 months period, however. The loan is due in 2 years, with the option to pay it back early, and does not require any form of collateral. The SBA has waived any additional fees typically associated with SBA loans.

Business owners may only apply for one loan. Proceeds may be used on payroll costs and benefits, interest on mortgage obligations that incurred prior to February 15th, 2020, rent under lease agreements incurred before February 15th, 2020, and utilities, for which service began before February 15th, 2020.

How will my loan be forgiven?

You will only owe money after two years when your loan is due if:

• You use the loan amount for anything other than payroll costs, mortgage interest, rent, and utility payments over the 8 weeks after getting the loan.

• Your loan forgiveness will be reduced if you decrease salaries or wages by more than 25% for any employee that made less than $100,000 in 2019.

• Your loan forgiveness will also be reduced if you decrease the number of full-time employees during this time. o If you do make staff changes, you may re-hire these employees by June 30th, 2020 and restore salary levels for any changes made between February 15th and April 26th, 2020.

Applicants may apply through existing SBA lenders or other regulated lenders. Go to www.SBA.gov to view a list of SBA lenders. To apply, you must complete the Paycheck Protection Program application by June 30th. Supply is limited so we recommend applying as soon as possible. You can access the application here.

The world may seem out of sorts lately, but we are here to help and answer any questions you may have. We will continue to stay on top of any changes that may impact your financial plan.

Josh Bitel is an Associate Financial Planner at Center for Financial Planning, Inc.® He conducts financial planning analysis for clients and has a special interest in retirement income analysis.

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While we are familiar with the tax provisions of the issues presented herein, as financial advisors of Raymond James, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

If I Don’t Have To Take A Withdrawal From My IRA This Year, Can I Still Give To Charity?

Contributed by: Jeanette LoPiccolo, CRPC®

With the recent passage of the CARES Act, IRA owners (over the age of 70 ½) are not required to make a minimum distribution in 2020. While some folks may wish to continue their IRA withdrawals for cash flow or tax planning reasons, others may wish to skip IRA withdrawals.

The good news: If you are over age 70 ½ and want to make donations to charity, Qualified Charitable Distributions (QCD) continue to be a great strategy for 2020. Simply contact your Client Service Associate to get the process started.

QCD Refresher

The QCD, which applies only if you’re at least 70 ½ years old, allows you to directly donate up to $100,000 per year to a charity. Normally, any distribution from an IRA is considered ordinary income from a tax perspective; however, when the dollars go directly to a charity or 501(c)3 organization, the distribution from the IRA is considered not taxable.

If you are not sure how much you can afford to give to charity this year, simply ask your financial planner to review your plan and make a recommendation.

Jeanette LoPiccolo, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.® She is a 2018 Raymond James Outstanding Branch Professional, one of three recognized nationwide.

RMDs Waived In 2020! Should I Make A Withdrawal Anyway?

Contributed by: Kali Hassinger, CFP®

If you read through our CARES Act blog you may have noticed a brief mention of the fact that Required Minimum Distributions are suspended for 2020. This change applies to all retirement accounts subject to RMDs such as IRAs, employer-sponsored plans like 401(k)s, and 403(b)s, and inherited retirement accounts.

If you are among the fortunate who only take RMD withdrawals because they are required, the CARES Act presents a real financial planning opportunity for 2020! The reduction in your income provides some wiggle room to implement other tax, income, and generational strategies.

ROTH CONVERSION

Moving money from a tax-deferred account to a tax-exempt account like a Roth IRA is a great long-term strategy to consider. Typically, RMDs must be withdrawn from the retirement account before any additional funds are allowed to be converted.

Account holders could now, in theory, convert their typical RMD amount into a Roth. Your taxable income wouldn’t be any higher than you’ve most likely planned for this year and you get the benefit of the Roth tax treatment in the future. Roth conversions are especially favorable with accounts that will ultimately be inherited by children/family members who are in higher tax brackets or if your IRA balance is significant. The SECURE Act of 2019 changed the rules for inherited retirement accounts, they are no longer able to be stretched out over the lifetime of the beneficiary. Now, a beneficiary must withdrawal the entire account balance within ten years of inheritance. Distributing a tax-deferred retirement account in ten years, which has often taken a lifetime to accumulate, could create substantial taxable income for the beneficiary.

Roth funds, however, maintain their tax-free withdrawal treatment from generation to generation!

Keep in mind that, unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

TURN ON OTHER INCOME

For many in retirement, managing income to remain consistent is an integral part of their financial plan. In years when income fluctuates up, taxes due and Medicare premiums can be negatively impacted. The suspension of RMDs provides the opportunity to act on some of the strategies that you may be avoiding because of the tax implications. Non-Qualified Annuity withdrawals, for example, are taxed on a last-in, first-out basis. That means that growth is assumed to come out first and is taxable as ordinary income (note: the taxation of annuitized accounts differs). If you’ve been holding off on accessing a Non-Qualified Annuity to avoid the additional tax, this year could be an excellent opportunity to make a withdrawal instead of taking your RMD!

HARVEST GAINS

We’ve seen our fair share of market losses so far this year, and harvesting investment losses is an effective tax reduction strategy. However, for those who aren’t taking RMDs this year, it could be an opportunity to harvest gains instead. It isn’t uncommon to hold onto long-term investments, not necessarily because they are still desirable, but to avoid the capital gain taxation. 

If annual income is reduced by your RMD amount, there may be some wiggle room to lock-in those profits in a tax-efficient manner.

FILL UP YOUR TAX BRACKET

The Tax Cuts and Jobs Act of 2017 reduced income tax rates for many. If you are in a lower tax bracket now than you have been, historically withdrawing your Required Minimum Distribution amount (or more) may still be beneficial in the long term.  

The Tax Cuts and Jobs Act of 2017 reduced income tax rates for many. If you are in a lower tax bracket now than you have been historically, withdrawing your Required Minimum Distribution amount (or more) may still be beneficial in the long term. For those who have already taken their RMD for the year and wish they hadn’t, there are some options to reverse the withdrawal. The most straight forward choice, if the withdrawal occurred within the last 60 days, is to treat it as a 60 days rollover & redeposit the funds. It’s important to remember that you are only allowed one 60 day rollover per year. If you’re outside of that 60-day window, however, there is a CARES Act provision that allows COVID-19 related hardship withdrawals to be repaid within the next three years. This provision is expected to be broadly interpreted, but we do not have clarity on whether this hardship provision will apply to RMDs.

Be sure to discuss the options surrounding RMDs with both your financial planner and taxpreparer. Any income and tax changes should be examined before making a decision. Many times, reviewing your financial plan and goals can be a helpful exercise in determining what strategy is best for you!

Kali Hassinger, CFP®, CDFA®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.