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That’s $2 Trillion:  With a “T”

That’s $2 Trillion:  With a “T”

March 27, 2020
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The largest stimulus plan in history is now signed into law.  Soon, checks will be in the mail to over 150 million American households, small businesses will have access to working capital loans, the US health care system will get a much needed lift, and commercial aviators will be trekking through the skies again as the most distressed sector in the economy, airlines, will receive a lifeline from the US Government. 

In addition to the vast array of financial aid and assistance packages that are in this bill to jumpstart our economy, there are some provisions that can help investors that are being impacted by the current pandemic. 

In an effort to facilitate investors, a temporary waiver of required minimum distributions (RMDs) from IRAs and defined contribution plans (401(k)/403(b)) will provide relief to individuals who would otherwise have to make taxable withdrawals from their accounts.  Waiving the RMDs will reduce heavy tax burdens for millions of people who would be paying taxes based on much larger account balances while, at the same, watching their current investments dwindle due to the current stock market crash.  At the end of last year, the markets were pushing to all-time highs and today, they’re dropping like a rock which, if not for this relief, RMDs would be very ill-timed. 

It also important to note that this RMD waiver relief applies to owners of beneficiary IRAs and Roth IRAs alike but, unfortunately, the law does not allow anybody to reverse RMDs already withdrawn in 2020.  Those transactions cannot be overturned.

Additionally, this milestone legislation allows for a waiver of the 10% early withdrawal penalty for those under age 59 1/2.  Retirement distributions of up to $100,000 can now be withdrawn from retirement accounts and as long as the money is used for coronavirus-related costs or expenses, investors won’t get clipped the additional surtax.  Further, any income tax that is due on withdrawals that qualify for this special treatment can be spread out over a three year time frame.  The distributions are still taxable, but this part of the law lessens the blow for those who have no other choice to but tap into retirement assets.  (Quick Side-Note:  Don’t be tempted to pull money from your retirement account if you don’t REALLY need to.  Remember, this money needs to be there for retirement purposes for decades to come!) 

Another notable provision in the bill allows for an exclusion for certain employer payments of student loans that enables employers to make student loan repayments a tax-free benefit to employees who carry the debt.  This rule allows for an employer to pay out up to $5,250 per year to pay an employee’s student loans and that compensation won’t be included in the employee’s taxable income.

This historic and momentous bill is lined with aid packages and assistance programs that are designed to help Americans when we need it most.  At Capstone, we believe that all fiscal and monetary policies will promote a strong recovery but we are still warning all investors to continue to observe caution during these volatile times. 

We will continue to provide updates periodically on all fiscal action coming from lawmakers and we will continue to communicate our views on the markets, economy, and the Coronavirus.  Please stay tuned, stay safe, and stay healthy. 

If you would like to contact us with any concerns or questions, please call.  We can be reached at (570) 587-7800 (office - direct) or 888-587-7526 (toll free).

(The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.)