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Zach Abraham On April 17: ‘We’re Seeing a Bear Market Rally’

By | In The Headlines, Market Risk, News, Stock Market

Zach Abraham, Chief Investment Officer and Principal at Bulwark Capital Management, appeared on Cheddar.com again on Friday, April 17, live from the New York Stock Exchange, to discuss the effect that the coronavirus outbreak was having on stock markets. At that time, markets were at their highest point since March 10.

“Right now, the market is trading based on coronavirus news, which we think is a mistake. We equate it to focusing on a hurricane—nobody’s obsessed about when the hurricane will be over, the question is, what damage is left will be left in its wake?”

Zach went on to make the point that the market being up is, of course, a good thing, as is news of a potential vaccine being announced by Gideon, “We’re all cheering for that.” Also, he doesn’t have a crystal ball—no one does. But he urges caution since a vaccine could take 11 months or longer, and he encourages investors to start looking more closely at underlying market fundamentals being exacerbated by the coronavirus. “They’re bad, they’re really bad. You’ve got the S&P at a 22 price-to-earnings (PE) ratio going into the most severe economic shock in history. I’m just going to bet that doesn’t last; it’s not warranted.” Zach said he expects some potentially shocking earnings reports in the upcoming year from companies who simply cannot forecast sales accurately at this time, or what may happen with some of their divisions due to unpredictable future economic fallout.

Watch the full episode here: https://cheddar.com/media/stocks-close-higher-dow-hits-for-first-time-since-march

 

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ABOUT CHEDDAR.COM

Cheddar is a streaming digital video service that broadcasts live from the floor of the New York Stock Exchange (NYSE) daily. Focused on business-minded millennials, the service highlights tech and consumer stocks while also covering the intersection of tech, media, news and culture.

 

Follow this link to the Cheddar.com web page: https://cheddar.com/media/stocks-close-higher-dow-hits-for-first-time-since-march

Zach Abraham: Coronavirus’ Effect on Cryptocurrency ‘Unpredictable’

By | Investments, Market Risk, News, Stock Market

Zach Abraham was recently quoted by Decrypt Debrief in their article, “Coronavirus, Bitcoin and the economy: what can we expect?”

Zach Abraham, Chief Investment Officer of financial services firm Bulwark Capital Management, agreed that the current economic situation is “incredibly unique,” and hard to predict.

“This is a different situation than 2008 but in some ways it’s much more unpredictable as the problems caused by excess are in every market,” he said. “The variables are endless and most of them aren’t looking too hot at the moment.”

You can read the full article HERE.

 

 

The CARES Act: 10 Things You Should Know

By | News

The $2 trillion coronavirus economic stimulus bill is the single largest relief legislation in U.S. history, aimed at providing help for individuals and businesses affected by the outbreak. It was signed into law on March 27, 2020. The CARES Act is also known as “Phase III,” because it follows a $104 billion package passed March 18 for workers and families, and a smaller $8 billion bill to increase funding for medical treatments and testing. There is already talk of a fourth and fifth package in development in Congress.

Here’s what you should know:

  1. Direct Payments to Taxpayers

Americans are set to receive a one-time direct deposit^ of $1,200 estimated to occur mid-April, based on their most recent tax return on file with the IRS from 2018 or 2019^^. Joint tax filers will receive $2,400. Heads of household and joint filers with children will receive an additional $500 per child under age 17.

For individuals with incomes from $75,000 – $99,000, heads of household earning $112,500 – $146,500 and joint filers earning from $150,000 – $198,000, the payment is reduced by 5% ($50 for every $1000 in AGI), and will not be made for those earning more than that. Social Security recipients will receive their checks based on information from the Social Security Administration; they needn’t file tax returns to receive the money.

^Payments will be deposited to the last bank account used for IRS refunds and/or Social Security direct payments or mailed to the last known address. NOTE: Mailed checks may take up to 20 weeks or longer; the IRS can only process about 5 million per week; they are to provide a phone number for issues with payment addresses and bank account changes.

^^NOTE: The payment is based on anticipated 2020 income. If taxpayer income in 2018 or 2019 was too high to qualify, but meets thresholds in 2020, the payment will be made in 2021. If taxpayer income in 2018 or 2019 was low enough to qualify but turns out to be higher than thresholds for 2020, the taxpayer gets to keep the payment; there will be no claw-back.

  1. Unemployment Benefits

Unemployment benefits for those affected by the coronavirus will be increased to an additional $600 per week for four months on top of state benefits. Temporarily through July 31, under a measure called “Pandemic Unemployment Assistance,” this will also apply to self-employed, independent contractors and gig economy workers who typically aren’t allowed to file for unemployment. Regular state unemployment benefits will be extended beyond the normal 26 weeks and will be paid by the federal government through December 31 for those eligible who remain unemployed. Employers who reduce employee hours instead of laying off workers and employees with reduced hours can also receive up to 26 weeks of pro-rated benefits.

  1. 401(k) / 403(b) / Traditional IRA / Qualified Retirement Plan Loans

The loan limit from qualified retirement plans for workers who contract COVID-19 or are otherwise adversely affected is doubled to $100,000 without the 10% penalty for workers under the age of 59-1/2.  There is no mandated 20% withhold by the 401(k) administrator for taxes; income taxes will be due on the distribution amount spread over three years unless the taxpayer returns the money to the account over the three-year period.

  1. RMDs Suspended for 2020

Required Minimum Distributions are suspended for 2020 for retirees as well as heirs and/or beneficiaries; funds can stay invested without penalty. Voluntary distributions are still allowed, including tax-advantaged Qualified Charitable Distributions (QCDs).

  1. Student Loans / Mortgage Forbearance

Student loan payments will not be due and interest will not accrue on federal student loan debt (not private) through September 30, 2020, but voluntary payments can be made toward existing principal and interest. Temporarily through December 31, 2020, employers may pay for an employee’s student loan debt up to $5,250, excluding that amount from both the company’s income and the employee’s income, thus making it a desirable, income tax-free benefit.

Those with single family mortgages backed, insured and/or guaranteed by federal government agencies may be eligible to request 180 days of mortgage forbearance due to financial hardship as a result of COVID-19. Penalties, fees or extra interest during the forbearance period may not be assessed. This may be extended another 180 days at borrower’s request. The hardship must be documented by the loan servicer, and payments will be due later. With some forbearance programs, you may owe all of your missed payments at one time, or additional payments at the end of the mortgage might be required, so it’s important to be familiar with the final terms. If renting from an owner who has a federally backed mortgage, the CARES Act provides for a suspension or moratorium on evictions. More information here: https://www.consumerfinance.gov/about-us/blog/guide-coronavirus-mortgage-relief-options/

  1. Health Care Provisions

All coronavirus testing and potential vaccines for COVID-19 will be covered at no cost to patients. Health Savings Accounts (HSAs), Archer Medical Savings Accounts (MSAs), and Healthcare Flexible Spending Accounts (FSAs) are expanded permanently to include over-the-counter medications as well as menstrual care products. Medicare payments are being accelerated, and there is a 20% add-on payment for inpatient treatment as well as increased access to post-acute care. Medicaid scheduled reductions for low-income assistance are postponed through November 30, 2020. Physicians may receive increased payments if labor cost is determined to be below national average through December 1, 2020.

  1. Charitable Giving

Taxpayers may deduct up to $300 in charitable cash contributions to qualified charities if they don’t itemize for the 2020 tax year. On itemized returns, the limit of 60% of Adjusted Gross Income (AGI) to qualified charities is removed for the year; a maximum of 100% of AGI can erase an individual’s tax liability for 2020 and any excess can be carried forward as a charitable contribution for up to five years.

  1. Employer Payroll Tax Delay

Employers may delay paying their portion of 2020 payroll taxes, paying back 50% in 2021 and 50% in 2022. A refundable payroll tax credit may be available for up to 50% of wages paid during the crisis for those who continue to pay employees, but whose businesses were fully or partially suspended due to a COVID-19 shut-down order, or whose gross receipts declined by more than 50% compared to the same quarter of the prior year.

  1. Small Business Loans and Credits / Paycheck Protection Program

A total of $349 billion is dedicated to preventing layoffs and business closures due to the outbreak, and the Treasury Secretary has committed to ask Congress for more should that amount be depleted.

Companies with 500 or fewer who maintain their payroll and who meet other criteria can receive up to eight weeks of cash-flow assistance, which can be forgiven when used for payroll costs, group health premiums, interest on mortgage obligations, rent and utilities. The debt forgiven will not be counted as taxable income to the company.

Size of loans can equal 250% of an employer’s average monthly payroll, up to a maximum of $10 million, with a maximum interest rate of 4%; loans are available through the more than 800 existing Small Business Administration-certified lenders plus more; some loans may be funded the same day. (Find lenders here: https://www.sba.gov/funding-programs/loans.) The first payment will be due after six months and the full loan will be due after two years. NOTE: Businesses with existing SBA loans will not have to pay principal, interest or fees on those loans for six months; the SBA will pay.

  1. Tax Changes for Businesses
  • Net operating loss rules are modified for losses arising in 2018, 2019 or 2020. The 80% rule is lifted, and losses can be carried back five years.
  • Excess loss limitation rules for pass-through entities are suspended.
  • Businesses who invested in Qualified Improvement Properties in 2018 and 2019 can receive tax refunds now.
  • Businesses (especially retail, restaurants and hotels) can immediately write off costs for improving facilities instead of having to depreciate improvements over 39 years. This provision corrects a typographical mistake in the Tax Cuts and Jobs Act.
  • Companies can recover Alternative Minimum Tax credit refunds now.
  • The amount of interest expense that businesses can deduct on tax returns increases from 30% to 50% for 2019 and 2020.
  • Federally backed mortgage loans are prohibited from foreclosure for a 60-day period starting March 18, 2020.
  • Landlords are prohibited from taking legal action to recover possession of a rental property for nonpayment of rent for 120 days if their mortgages are backed by federal agencies or programs.

 

There is much, much more included in this 800-page piece of legislation. Please call us if you have questions, and we will keep you as up to date as possible as things change and clarifications come to light.

Contact Bulwark Capital Management in Tacoma, Washington at 253.509.0395

 

 

 

 

This information is provided as a courtesy and is accurate to the best of our knowledge. However, this is new legislation still being analyzed by experts. IRS clarifications will follow. Do not rely on this information or consider it as tax advice; obtain direct information about your individual situation from your CPA or tax professional.

 

Sources:

https://home.treasury.gov/cares

https://www.consumerfinance.gov/about-us/blog/guide-coronavirus-mortgage-relief-options/

https://www.forbes.com/sites/leonlabrecque/2020/03/29/the-cares-act-has-passed-here-are-the-highlights/#759dfbb068cd

https://www.natlawreview.com/article/president-trump-signs-law-coronavirus-aid-relief-and-economic-security-cares-act

https://www.kitces.com/blog/analyzing-the-cares-act-from-rebate-checks-to-small-business-relief-for-the-coronavirus-pandemic/

https://www.forbes.com/sites/zackfriedman/2020/03/28/student-loans-payments-suspended/#3d8734ae1b10

https://www.washingtonpost.com/business/2020/03/30/heres-how-get-small-business-loan-under-349-billion-coronavirus-aid-bill/

https://www.thinkadvisor.com/2020/04/01/treasurys-mnuchin-vows-to-boost-small-business-loan-pool-under-cares-act/

https://www.benefitresource.com/blog/cares-act/

https://www.npr.org/sections/coronavirus-live-updates/2020/04/02/826187693/stimulus-cash-payments-may-take-up-to-20-weeks-to-reach-some-americans

5 Things You Need to Know About the SECURE Act

By | News, Retirement, Tax Planning

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE) became effective Jan. 1, 2020, and many people have questions about it. Here are the top five things consumers should know.

 

  1. 72 is the new 70½

The SECURE Act raises the age at which retirees must begin taking Required Minimum Distributions from the awkward age of 70-1/2 to an even age 72, allowing for a couple more years of growth before RMDs kick in. NOTE: Anyone who reached age 70-1/2 in 2019 or before is subject to the old rules.

 

  1. You can keep making contributions to traditional IRAs

The act repeals the age limitation for making contributions to traditional IRAs, as long as you have earned income. Previously, the maximum age for traditional IRA contributions was set at 70-1/2 (this was the only type of retirement account which had an age limitation). Now, those working into their 70s and beyond can continue contributing to their traditional IRAs, even if they’re simultaneously required to begin drawing them down.

 

  1. The stretch IRA is dead

While existing “stretch IRAs” are grandfathered in and still follow the old tax rules, stretch IRAs are unlikely to be used by financial and estate planners in the future because their tax advantages have been drastically reduced.

Prior to the new law, stretch IRAs were primarily used for estate planning because they allowed a family to extend distributions over future generations—while the IRA itself continued to grow tax free. The person inheriting an IRA was required to take RMDs based on their life expectancy, which meant that a very young beneficiary could stretch out their distributions potentially over their lifetime.

Now beneficiaries must draw down the entire account within 10 years of inheriting it, possibly throwing them into a higher tax bracket. (They can take the money out in any year or years they like, as long as the account is empty by 10 years of the date of death of the original account owner.)

The new 10-year rule also applies to inherited Roth IRAs.

You may want to review your plan if you have stretch IRAs set up for your family, because any IRA inherited as of January 1, 2020 is subject to the new rules. Trusts you may have put in place to take advantage of stretch IRA rules probably won’t ameliorate taxes anymore either.

Keep in mind that the act does provide for a whole class of exceptions who aren’t subject to this 10-year rule; for them, the old distribution rules still apply. These beneficiaries (referred to as “Eligible Designated Beneficiaries”) are:

  • Spouses
  • Disabled beneficiaries
  • Chronically ill beneficiaries
  • Individuals who are not more than 10 years younger than the decedent
  • Certain minor children (of the original retirement account owner), but only until they reach the age of majority. NOTE: At this time, minor children would appear to be ineligible for similar treatment if a retirement account is inherited from a non-parent, such as a grandparent.

 

This new law is clearly designed to raise taxes. According to the Congressional Research Service, the lid put on the Stretch IRA strategy by the new law has the potential to generate about $15.7 billion in tax revenue over the next 10 years!

 

  1. The Roth got more attractive

Because contributions to Roth IRAs are made on an after-tax basis, a Roth account owner is not subject to Required Minimum Distributions at any age. An owner can leave their Roth to grow until their death, leave it to their spouse, who can then allow it to grow until they die. The second spouse can leave it to their children, who can then allow it to continue to accumulate tax-free for another 10 years, although they will now have to empty the account by the 10-year mark.

In terms of estate planning, Roth IRAs typically do not cause a taxable event when distributions are taken by a beneficiary.

Low individual tax rates by historical standards and a pending reversion in 2026 to the higher income tax brackets/rates that preceded the Tax Cuts and Jobs Act (TCJA) of 2017 can make this an opportune time for Roth conversions for those over age 59-1/2. These can benefit you, your spouse and heirs by strategically moving taxable retirement funds into tax-free Roth retirement accounts. The most common strategy for Roth conversions is ‘bracket-topping,’ where you convert enough to go to the edge of your tax bracket.

Keep in mind that these conversions need to be planned and done carefully, as they can no longer be reversed.

Remember, any account can be set up as a Roth – including CDs, government bonds, mutual funds, ETFs, stocks, annuities—almost any type of investment available.

 

  1. Other non-retirement related provision highlights:
  • You can use $5,000 of qualified money for childbirth or adoptions
  • 529 plan-approved “Qualified Higher Education Expenses” now include expenses for Apprenticeship Programs—including fees, books, supplies and required equipment—provided the program is registered with the Department of Labor
  • 529 plans can also be used for “Qualified Education Loan Repayments” to pay the principal and/or interest of qualified education loans limited to a lifetime amount of $10,000, retroactive to the beginning of 2019
  • The Kiddie Tax rules changed by the Tax Cuts and Jobs Act (TCJA) of 2017 have been reversed, (and can be reversed for the 2018 tax year as well)
  • The AGI (Adjusted Gross Income) “hurdle rate” to deduct qualified medical expenses remains lower at 7.5% of AGI for 2019 and 2020.
  • The following tax benefits for individuals are reinstated retroactively to 2018, and made effective onlythrough 2020 at this time:
    • The exclusion from gross income for the discharge of certain qualified principal residence indebtedness
    • Mortgage insurance premium deduction
    • Deduction for qualified tuition and related expenses

 

There are even more provisions of the SECURE Act designed to make it easier for small business owners to offer retirement plans to employees, as well as add annuities to their plans.

 

Call us if you would like to discuss how the new changes will affect your financial plan. You can reach Bulwark Capital Management in Tacoma, Washington at 253.509.0395.

 

The SECURE Act is a complex new law still being analyzed and assessed by industry experts. IRS clarifications may follow. The information in this article is provided for general information and educational purposes only. It is not designed nor intended to be applicable to any person’s individual circumstances. It should not be considered investment advice, nor does it constitute a recommendation that anyone engage in or refrain from a particular course of action.
Do not rely on this information for tax advice. Check with your CPA, attorney or qualified tax advisor for precise information about your specific situation.
Sources:
https://www.wealthmanagement.com/retirement-planning/what-advisors-need-know-about-secure-act
https://www.marketwatch.com/story/economists-like-annuities-consumers-dont-heres-the-disconnect-2019-12-23
https://www.investopedia.com/articles/retirement/04/031704.asp
https://www.kiplinger.com/article/retirement/T064-C032-S014-pros-cons-and-possible-disasters-after-secure-act.html
https://www.forbes.com/sites/leonlabrecque/2019/12/23/the-new-secure-act-will-make-roth-strategies-much-more-appealing-here-are-five-ways-to-use-a-roth/#3c239df6381d
https://www.marketwatch.com/story/secure-act-includes-one-critical-tax-change-that-will-send-estate-planners-reeling-2019-12-30
https://www.kitces.com/blog/secure-act-2019-stretch-ira-rmd-effective-date-mep-auto-enrollment/