On This Episode
The Coronavirus (COVID-19) is having a dramatic impact on our daily lives and many people are taking a huge financial hit from lost wages, a volatile stock market, and general economic uncertainty. Congress recently passed the CARES Act to try and help alleviate some of the financial impacts. John and Nick will give us the rundown on this new bill.
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PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.
Here is a transcript of today’s episode:
Speaker 1: Hey everybody, welcome in to this edition of Retirement Planning Redefined with John and Nick from PFG Private Wealth. And boy, guys, welcome into yet another week of bizarro world. What’s going on? How are you?
Nick: Pretty good. Staying busy. We’ve just been kind of proactively trying to reach out to clients and put our psychiatrist hats on for the last few weeks. But we’re kind of bunkered down working from home and just trying to stay in touch with everybody.
Speaker 1: Yep. John, how are you man?
John: Doing good. Doing good. Definitely doing the challenges of working from home with two little ones and homeschooling and all that, but we have my parents helping us quite a bit, so that’s been a nice relief.
Speaker 1: Okay, good. Yeah, I think we’re all in that boat, so one good thing about all of this is we have the technology right now to continue to do some business and work. We’re staying home, we’re staying safe. So if you’re checking out this podcast, don’t worry, we’re not doing anything wrong. We’ve been practicing social distancing, which is a new word in everybody’s lexicon, for a while. We do these shows remotely anyway, so we’re kind of ahead of the curve in that respect. But you can still work with John and Nick. If you’ve got questions or concerns, you can still talk with them via virtual meetings and things of that nature. And today we’re going to break down the CARES Act a little bit. And Nick, I know you’ve got something you want to share real fast before we do.
Nick: Yeah, the big thing that we wanted to make sure that we pointed out for this is that we see this session as more informative and not advice based. So we just want to make sure that everybody knows that sticking to the plan is ultimately the primary goal. And if any of the provisions of the new act and the new legislation are something that people think that may be something they need to take advantage of or use or might be applicable to them, we highly recommend that they consult with not only their advisor, whether it’s us or someone else, but a tax professional as well. We just don’t want to see anybody harmed longterm from any of the provisions inside of this act.
Speaker 1: Yeah, definitely. Well, let’s go ahead and jump into some of those provisions and let’s talk about some of the things inside the CARES Act. Whoever the guy is or gal that gets the job of naming things there, they’ve been on a roll lately. They got the SECURE Act, the CARES Act, they all have these, whoever the czar of acronyms is …
John: Yeah, they definitely make you feel good, huh?
Speaker 1: Yeah. Really. So hit us with some of these provisions, Nick. What do you got?
Nick: Sure. So the first provisions that we’re going to kind of review and go over are provisions that make people’s money inside of their retirement accounts a bit more accessible without incurring penalties. So as an example, investors are now able to take out up to $100,000 in 2020 without paying the 10% early withdrawal penalty, which can be a big deal. So normally the early withdrawal penalty is a 10% penalty, so that penalty is waived for any anybody at any age. And then although that withdrawal will be a taxable withdrawal, taxes can be avoided if the money is replaced in those accounts within three years. So essentially what happens is, if someone needs to take out $50,000 from their investment account, their IRA, or 401k account, and they’re taking it as a distribution, not as a loan, then the 10% penalty is waived if they’re under 59 and a half.
Nick: If they replace the money over three years, they can avoid any sort of tax on it, but they can also spread the tax on the distribution over three years, which then kind of builds in some flexibility and time to pay that back. So that’s a pretty big deal. The distributions can be taken for corona-related issues, but really the rules are pretty loose. So we do recommend people kind of document what in theory they’re using the money for and why, just so that they have some records. And for those of us out there that may need to take advantage of loans out of a 401k. So maybe you say, “Hey, I don’t want to take a distribution. I want to take a loan.” Typically, and these are usually plan sponsor dictated, but typically the maximum amount that somebody could take out via a loan is 50,000 and actually what’s happened is they’ve increased that limit up to 100,000 of a fully vested balance.
Nick: So that’s a pretty big deal as well. And the biggest difference there, though, that people want to understand is when you take a distribution out versus a loan, a loan is typically going to have a preset repayment schedule. So if cashflow is a significant issue, the loan may be much more difficult to manage than the distribution. And the last thing, for those of our clients out there who are due to take required minimum distributions or RMDs, they are actually waiving that requirement for this year, which is kind of a big deal. So the thought process with that for people is, “Hey, maybe you don’t need the distribution from your account, you don’t need that additional income, and you’re trying to let your account balance back after the hit it’s taken in this market cycle. So why recognize the loss while you can keep the money in there for now?” And we just kind of pick up where we left off on next year.
Speaker 1: Okay.
John: Also, one thing with the loans as well that people should be aware of, and again it’s up to the plan itself, is that if you leave your employer, so let’s say you take out a loan and then something happens, you were to be laid off in a few months. Some plans have a provision where you have to pay back the loan within 30 to 60 days of your separation, so that’s going to be important. If you’re looking at that as an option, just understand that, “Hey, if I take out 50,000 due to what’s going on right now,” if you were to be laid off or separated from service in the near future, you may have to pay that 50,000 back in a certain timeframe. So it’s just important to really understand where you’re getting into and just really talk to a professional that can walk you through it.
Speaker 1: Yeah. And obviously with the CARES Act, it’s very fresh. At the time we’re taping this podcast here, it just was a few days ago. So there’s still going to be a lot of data coming out. The guys are sharing some good provisions and thoughts with you, but as always, as they mentioned, please check with a qualified professional before you take any action and see how it’s going to affect you. So John, on that kind of front for a minute, how do you feel about these changes overall? Do you see these as being effective?
John: Yeah, so I think anything to help people out during this time is good. Definitely a lot of people are nervous and scared, especially if you’ve been laid off or let’s say your company is slowing down and you’re not getting as much work. So this definitely helps alleviate some of that stress, saying, “Hey, you know what? I have this in my back pocket that I can access without the penalty, and there’s nice rules in place where I can put it back in and avoid the taxes.” So we ultimately think that’s good. But as far as when we, and I believe our next session we’re going to talk about planning, you definitely want this to be kind of a last resort type thing. You don’t want it to be the first kind of bucket of money you go towards, cause when you save for retirement you want to set that money aside for retirement.
John: So when we do planning for clients, we try to make sure that, “Hey, we have three to six months in emergency savings.” Which basically this would constitute accessing that right now, it’s an emergency and you have three to six months to kind of get you through your everyday living expenses. So we would say definitely kind of try to access some other money first. But this is the last resort. Again, it’s just a nice thing to have in case you need it.
Speaker 1: Yeah. Yeah. And I was going to ask you that. I was going to say, did it make sense from a financial retirement planning standpoint? But you kind of answered that question for me. So you kind of view this as hopefully people are going to view this as a last resort should they need it.
John: Yeah. And like Nick mentioned, you really want, if you’re working with someone important, to before you do anything, talk to that person you’re working with to make sure what you’re doing is right for your situation. Because as we know, and we say it when we teach our classes and we’ll say it now and we say it during our podcast, everyone’s situation is different. So everything depends on what’s important to you and what your goals are.
Speaker 1: Yep, absolutely. That is a given. Well, Nick, let’s talk a little bit about the unemployment benefits. What’s some data and some things to consider in this area?
Nick: Yeah, so there’s been a couple of changes in this act for unemployment benefits. So typically unemployment benefits are state to state, which will stay the case. However, really for corona-related unemployment what they have done is increased the amount that people can collect to an additional $600 per week for really the next four months. For example, in Florida I believe the maximum amount per week is $275 a week, which isn’t going to really go too far with everything that’s going on. And I know that the unemployment filing systems and websites and everything is completely inundated and hard to get through.
Nick: But the extra $600 a week is a big deal. And I will say this too, that they have expanded the people that can file for unemployment. So previously a lot of people in this kind of, I’ll kind of describe the additional people who can file. A lot of times they were unable to file, so those that are not otherwise eligible but are based on this are self-employed, independent contractors, gig workers, part time employment seekers, people that lack sufficient work history, or those that have exhausted their unemployment benefits elsewhere. So that’s kind of a big deal. I’ve got a family member up north who owns a barber shop and is self-employed and normally would not be able to file and so he will be able to file with this. So that’s a pretty big deal.
Speaker 1: Well, let’s hit the big question a lot of people have, John, and that’s the checks to the individuals. Obviously that’s clearly on the front of everybody’s mind when it comes to the stimulus side.
John: Yeah. So individuals can get up to about 1,200 and that’s per person and then $500 for each child. So example, let’s say my wife and I, I could get 1,200, she can get 1,200. That puts us at 2,400. We have two kids. That’s an extra thousand dollars, 500 a piece. So that gives us a direct cash infusion of $3,400. Now, this is means tested. So basically this is for anyone that’s earning up to 75,000 individually or 150,000 for couples, and that’s adjusted gross income. And this is based off of your 2018 tax return or 2019, whatever one is the most recent.
Speaker 1: Small businesses, there’s a lot going on with that. And we know that that makes up a large portion of, workers in this country work for small businesses, more so a lot of times than actually work for the larger corporations. And so there’s a lot of provisions in there for those folks as well.
John: Yeah. So one thing that we’ve been noticing is that the small businesses seem to be the most effective so far. So what they’ve done is they’ve actually allocated about 350 billion to prevent layoffs and business closures, which will be a nice feature, especially for the small business owners that were forced to basically shut down. That will give them up to eight weeks of cashflow assistance. And one of the benefits to this is if they kind of maintain payroll, use a portion of the loans to cover interest, mortgage, utilities, rent, things like that, the loan could potentially be forgiven. And our disclaimer, we’re not attorneys, we’re not accountants, we’re not bankers. Important just to basically talk to those professionals that you work with to figure out if your situation works for this. So again, just check with professionals. Some places you can go to to look into this is FloridaDisasterLoan.org and then spa.gov to really get some information and maybe start the process if you’re interested in that.
Speaker 1: Yeah, and there’s a lot of data and a lot of information that’s, again, going to come out about this and there are so many people affected by it. Nick, any thoughts from you? Any kind of final thoughts as we wrap up this week’s podcast you want to share with us?
Nick: No, I would just say, from the standpoint of keeping an eye, these pieces of legislation are huge and so as you kind of mentioned, things kind of unwrap over time and everybody’s still kind of sifting through it all. So try not to act in haste and kind of work through and building contingency plans, and make sure that the decisions that you’re making are as sound as they can be in what we know is a pretty chaotic time.
Speaker 1: Yeah, definitely. I think that’s a good piece of advice. We have extra time on our hands, that’s for sure, so there’s no shortage of a few extra hours here and there since we’re not going out and doing as much. So make sure you’re taking the time, do the due diligence, look through things, talk with your advisor. If you’re not working with an advisor, reach out to John and Nick and have a conversation with them. You can do things virtually through Zoom meetings or GoToMeetings, phone calls. There’s lots of ways that,. one good thing about this happening now is that in 2020 we do have a lot of technology on our side to help us continue on with the business of planning for retirement, getting to it, getting through it, all those facets. And we will probably put this up in the notes as well, but I’ll go ahead and give it out again.
Speaker 1: The resources for those loans that John mentioned was FloridaDisasterLoan.org. That’s FloridaDisasterLoan.org. And also the sba.gov, www.sba.gov. As always, guys, make sure that you reach out to John and Nick, like I said, if you have questions or concerns here in the Tampa area at PFG Private Wealth. You can find them online at PFGprivatewealth.com. That is PFGprivatewealth.com. Subscribe to the podcast on Google, Apple, Spotify, whatever platform you choose. You can either search by typing in Retirement Planning Redefined or find it on the website, either way. Give them a call if you’ve got questions and you need to take immediate action. Before you do, definitely talk with them at (813) 286-7776. They are financial advisors, (813) 286-7776. Guys, thanks for your time this week on the podcast. I appreciate it and we will talk again soon for some more on the CARES Act.