Consolidated Appropriations Act Provides Relief to Individuals and Businesses

The $900 billion emergency relief package represents a bipartisan effort to assist individuals and businesses during the ongoing coronavirus pandemic and accompanying economic crisis.

On Sunday, December 27, 2020, the Consolidated Appropriations Act, 2021 (CAA 2021) was signed into law. A $900 billion emergency relief package is included as part of this omnibus spending bill. It is intended to assist individuals and businesses during the ongoing coronavirus pandemic and accompanying economic crisis. Major relief provisions are summarized here, as well as some additional tax provisions.

Unemployment provisions

The legislation provides an extension to expanded unemployment benefit assistance (although at a lower amount):

An additional $300 weekly benefit to those collecting unemployment benefits, through March 14, 2021
An additional 11-week extension of federally funded unemployment benefits for individuals who exhaust their state unemployment benefits
Targeted federal reimbursement of state unemployment compensation designed to eliminate state one-week delays in providing benefits (allowing individuals to receive a maximum 50 weeks of benefits)
Unemployment benefits through March 14, 2021, for many who would not otherwise qualify, including independent contractors and part-time workers

Recovery rebates

Most individuals will receive another direct payment from the federal government. Technically a 2020 refundable income tax credit, the rebate amount will be calculated based on 2019 tax returns filed and sent automatically via check or direct deposit to qualifying individuals. To qualify for a payment, individuals generally must have a Social Security number and must not qualify as the dependent of another individual.

The amount of the recovery rebate is $600 ($1,200 if married filing a joint return) plus $600 for each qualifying child under age 17. Recovery rebates are phased out for those with an adjusted gross income (AGI) exceeding $75,000 ($150,000 if married filing a joint return, $112,500 for those filing as head of household). For those with AGIs exceeding the threshold amount, the allowable rebate is reduced by $5 for every $100 in income over the threshold.

Rebate Amounts and Phaseout Ranges

Filing Status	Payment Amount	Phaseout Threshold	Phaseout Completed
Married Filing Jointly	$1,200	$150,000	$174,000
+ 1 Child	$1,800	$150,000	$186,000
+ 2 Children	$2,400	$150,000	$198,000
Head of Household	$600	$112,500	$124,500
+ 1 Child	$1,200	$112,500	$136,500
+ 2 Children	$1,800	$112,500	$148,500
All Others	$600	$75,000	$87,000

Business relief

The employee retention tax credit has been extended through June 30, 2021. It is available to employers that were significantly impacted by the crisis and is applied to offset Social Security payroll taxes. As extended, the credit is increased to 70% of qualified wages, up to a certain maximum per quarter.
Paycheck protection program (PPP) loans have been extended and the allowable uses (eligible expenses) of the loan expanded. A PPP loan amount can be forgiven for paying certain expenses, and such amount is not included in income. It is clarified that no deduction will be denied, no tax attribute reduced, and no basis increase denied by reason of the exclusion from gross income.
Repayment of employee payroll taxes deferred in 2020 was originally scheduled for the period January 1, 2021, through April 30, 2021. The period for repayment has been expanded to January 1, 2021, through December 31, 2021.
The employer tax credit for providing emergency sick and family leave has been extended through March 31, 2021.
A full deduction is now allowed for business meals provided by a restaurant for expenses paid or incurred in 2021 and 2022.

Rent relief

The legislation allocates funds to state and local governments to provide emergency rental assistance through December 31, 2021.
The legislation extends an eviction moratorium originally issued by the Centers for Disease Control and Prevention, but only through January 31, 2021.

Charitable giving

Enhancements to the normal charitable gifts deduction rules in 2020 have been extended through 2021.

For those who itemize deductions, the limit on the charitable gifts deduction has been increased to 100% of AGI for direct cash gifts to public charities.
For nonitemizers, a $300 (increased to $600 in 2021 for joint returns) charitable deduction for direct cash gifts to public charities is available (in addition to the standard deduction).

Other tax provisions

The floor for deducting medical expenses has been permanently lowered to 7.5% of AGI (it was scheduled to increase to 10% in 2021).

Starting in 2021, the deduction for qualified tuition and related expenses has been repealed. To make up for it, the modified adjusted gross income (MAGI) phaseout range for the Lifetime Learning Credit has been increased to be the same as the phaseout range for the American Opportunity Tax Credit.

A number of provisions that are periodically extended (often a year at a time) have been extended through 2025, including:

The exclusion from gross income of discharge of qualified principal residence indebtedness
The employer credit for paid family and medical leave
The exclusion from income for certain employer payments of student loans

A number of other provisions have been extended (generally through 2021), including:

The treatment of mortgage insurance premiums as qualified residence interest for purposes of the interest deduction
The energy efficient home credit

IMPORTANT DISCLOSURES The opinions expressed herein are those of Ballast Advisors, LLC and are subject to change without notice. The third-party material presented is derived from sources Ballast Advisors consider to be reliable, but the accuracy and completeness cannot be guaranteed. Past performance is not indicative of future results. Nothing contained herein is an offer to purchase or sell any product. This material is for informational purposes only and should not be considered investment advice. Ballast Advisors reserve the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2, which is available without charge upon request.

The Bull Is Back… Will It Keep Charging?

On August 18, 2020, the S&P 500 set a record high for the first time since COVID-19 ushered in a bear market on February 19. The cycle from peak to peak was just 126 trading days, the fastest recovery in the history of the index, erasing losses from an equally historic plunge of almost 34% in February and March.1

Based on the traditional definition of market cycles, the new record confirms that a bull market began on March 23 when the index closed at its official low point. This also confirms that the February-March bear market was the shortest on record, lasting just 33 days.2

Although the strong comeback is good news for investors, there is a striking disconnect between the buoyant market and an economy still struggling with high unemployment and a public health crisis. The market is not the economy, but the economy certainly affects the market. So it may seem puzzling that the market could reach a record high not long after the largest quarterly decline in gross domestic product

(GDP) in U.S. history.3

Optimism vs. exuberance

Whereas GDP measures current economic activity, the stock market is forward looking. The rapid bounceback suggests that investors believe the pandemic will be controlled in the not-too-distant future and that business activity will return to normal. Whether this optimism is warranted remains to be seen. The current economic situation remains tenuous, but there are hopeful signs. A vaccine could be available in early 2021, later than anticipated but offering light at the end of the tunnel.4 In the meantime, the virus continues to suppress business activity. The 10.2% July unemployment rate represented a big improvement over the previous three months, but it was still higher than at any time during the Great Recession.5 Recent projections of corporate earnings suggest they will not contract as much as expected, but they will still contract.6 GDP is projected to make up ground in the third and fourth quarters but remain negative for the year.7 The extreme of market optimism is irrational exuberance, and there may be some of that at work in the current situation. The proliferation of low-cost trading apps has encouraged less-experienced investors to trade aggressively, which might be driving some of the market surge.8

Economic stimulus

The single, most important factor behind the market recovery is the deep commitment from the Federal Reserve to provide unlimited support through low interest rates and bondbuying programs. For some investors, the fact that the economy is still struggling has a strangely positive effect in guaranteeing that the Fed will keep the money flowing.₉

Further support from the federal government is more uncertain, but the strong market suggests that investors may be counting on a second stimulus package.₁₀

Nowhere else to go

Low interest rates make it easier for businesses and individuals to borrow, but they have reduced bond yields to the point that many investors are willing to take on greater risk in equities in order to generate income. Money that might normally be invested in the bond market has poured into stocks, driving prices higher. This situation has its own acronym: TINA, There Is No Alternative to Stocks.₁₁

Big tech at the wheel

While the S&P 500 is generally considered representative of the U.S. stock market as a whole, the recovery has centered around technology companies, which have helped provide goods and services throughout the pandemic. The Big Six tech stocks — Apple, Facebook, Amazon, Netflix, Microsoft, and Alphabet (Google’s parent) — were up collectively by more than 43% for the year through August 18. By contrast, the rest of the companies in the S&P 500 were down collectively by about 4%. The Big Six tech companies now represent more than one-fourth of the total market capitalization of the S&P 500 and thus have an outsized effect on index performance.12 One question facing investors is whether to chase the winners or look to stocks and sectors that still lag their previous highs and may have greater growth potential. Chasing performance is seldom a good idea, but there are solid reasons why certain stocks have been so successful in the current environment.

Are stocks overvalued?

The most common measure of stock value is price/earnings (P/E) ratio, which represents the stock price divided by corporate earnings over the previous 12 months or by projected earnings over the next 12 months. The projected P/E ratio for the S&P 500 on August 18 was 22.6, the highest since March 2000 at the peak of the dot-com bubble. Big tech stocks were even higher, trading at 26 times their projected earnings, and the Big Six were higher still at more than 40 times projected earnings._13-14

A different measure of stock value compares the total market capitalization of all U.S. stocks with GDP. By this measure, the market was 77.6% overvalued on August 18, by far the highest valuation ever recorded. The previous highs were 49.3% in January 2018 and 49.0% in March 2000. This extreme ratio illustrates the current disconnect between the stock market and GDP, but a significant GDP increase during the third quarter could bring it down.₁₅

In considering these valuations, keep in mind that these are extraordinary times, and traditional expectations and measures of value may not tell the whole story. If nothing else, the extreme volatility and rapid market cycles of 2020 have illustrated the importance of maintaining a diversified all-weather portfolio and the danger of overreacting to market movements. While new records are exciting, they are only signposts along the road to achieving your long-term goals. The return and principal value of stocks and bonds fluctuate with changes in market conditions. Shares, when sold, and bonds redeemed prior to maturity may be worth more or less than their original cost. Investments seeking to achieve higher yields also involve a higher degree of risk. Diversification is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss.

_{The performance of an unmanaged index such as the S&P 500 is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index. Past performance is not a guarantee of future results. Actual results will vary.}

_{1, 3, 6, 8, 11, 13) The Wall Street Journal, August 18, 2020}

_{2) CNBC, August 18, 2020}

_{4, 9) The New York Times, August 18, 2020}

_{5) U.S. Bureau of Labor Statistics, 2020}

_{7) The Wall Street Journal Economic Forecasting Survey, August 2020}

_{10) CNBC, August 14, 2020}

_{12, 14) The Washington Post, August 20, 2020}

_{15) Forbes, August 18, 2020}

IRS Outlines Changes to Health-Care Spending Rules Under CARES Act

Coronavirus Aid, Relief, And Economic Security Act: Letter Tiles CARES Act On US Flag, 3d illustration

The IRS provided COVID-19 guidance for health Flexible Spending Arrangements and section 125 cafeteria plans related to high-deductible health plans through Notice 2020-29.

The amended rules under the Coronavirus Aid, Relief, and Economic Security (CARES) Act provide flexibility for health-care spending related to the ongoing COVID-19 pandemic.₁

High-deductible health plans cover telehealth services

Under the CARES Act, a high-deductible health plan (HDHP) can temporarily cover telehealth and other remote care services without a deductible, or with a deductible below the minimum annual deductible otherwise required by law.

Telehealth and other remote care services also are temporarily included as categories of coverage that are disregarded for the purpose of determining whether an individual who has other health plan coverage in addition to an HDHP is eligible individual to make tax-favored contributions to his or her health savings account (HSA). Thus, an otherwise eligible individual with HDHP coverage may still contribute to an HSA despite receiving coverage for telehealth and other remote care services before satisfying the HDHP deductible, or despite receiving coverage for these services outside the HDHP. These changes are effective for services provided on or after January 1, 2020 through December 31, 2021.

Additions to qualified medical expenses

The CARES Act also modifies the rules for “qualified medical expenses” that are reimbursable from tax-advantaged health savings accounts (HSAs), Archer Medical Spending Accounts (MSAs), health flexible spending accounts (FSAs), and Health Reimbursement Arrangements (HRAs). Specifically, the cost of menstrual care products is now reimbursable. These products are defined as tampons, pads, liners, cups, sponges and/or other similar products. In addition, over-the-counter products and medications are now reimbursable without a prescription. The new rules apply to amounts paid after Dec. 31, 2019. Taxpayers should save receipts of these purchases for their records and so that they are able to submit claims for reimbursement.

_{1) IR-2020-122, June 17, 2020}

_{IMPORTANT DISCLOSURES The opinions expressed herein are those of Ballast Advisors, LLC and are subject to change without notice. The third-party material presented is derived from sources Ballast Advisors consider to be reliable, but the accuracy and completeness cannot be guaranteed. Past performance is not indicative of future results. Nothing contained herein is an offer to purchase or sell any product. This material is for informational purposes only and should not be considered investment advice. Ballast Advisors reserve the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2, which is available without charge upon request.}

IRS Clarifies COVID-19 Relief Measures for Retirement Savers

Retirees who took RMDs in 2020 have until August 31, 2020, to roll the money back into a qualified account. This rollover will not affect the one-rollover-per-year rule.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March 2020 ushered in several measures designed to help IRA and retirement plan account holders cope with financial fallout from the virus. The rules were welcome relief to many people, but left questions about the details unanswered. In late June, the IRS released Notices 2020-50 and 2020-51, which shed light on these outstanding issues.

Required minimum distributions (RMDs)

One CARES Act measure suspends 2020 RMDs from defined contribution plans and IRAs. Account holders who prefer to forgo RMDs from their accounts, or to withdraw a lower amount than required, may do so. The waiver also applies to account holders who turned 70½ in 2019 and would have had to take their first RMD by April 1, 2020, as well as beneficiaries of inherited retirement accounts.

One of the questions left unanswered by the legislation was: “What if an account holder took an RMD in 2020 before passage of the CARES Act and missed the 60-day window to roll the money back into a qualified account?”

In April, IRS Notice 2020-23 extended the 60-day rollover rule for those who took a distribution on or after February 1, 2020, allowing participants to roll their money back into an eligible retirement account by July 15, 2020. This seemingly left account owners who had taken RMDs in January without recourse. However, IRS Notice 2020-51 rectified the situation by stating that all 2020 RMDs — even those received as early as January 1 — may be rolled back into a qualified account by August 31, 2020. Moreover, such a rollover would not be subject to the one-rollover-per-year rule.

This ability to undo a 2020 RMD also applies to beneficiaries who would otherwise be ineligible to conduct a rollover. (However, in their case, the money must be rolled back into the original account.)

This provision does not apply to defined benefit plans.

Coronavirus withdrawals and loans

Another measure in the CARES Act allows qualified IRA and retirement plan account holders affected by the virus to withdraw up to $100,000 of their vested balance without having to pay the 10% early-withdrawal penalty (25% for certain SIMPLE IRAs). They may choose to spread the income from these “coronavirus-related distributions,” or CRDs, ratably over a period of three years to help manage the associated income tax liability. They may also recontribute any portion of the distribution that would otherwise be eligible for a tax-free rollover to an eligible retirement plan over a three-year period, and the amounts repaid would be treated as a trustee-to-trustee transfer, avoiding tax consequences.₁

In addition, the CARES Act included a provision stating that between March 27 and September 22, 2020, qualified coronavirus-affected retirement plan participants may also be able to borrow up to 100% of their vested account balance or $100,000, whichever is less. In addition, any qualified participant with an outstanding loan who has payments due between March 27, 2020, and December 31, 2020, may be able to delay those payments by one year.

IRS Notice 2020-50

To be eligible for coronavirus-related provisions in the CARES Act, “qualified individuals” were originally defined as IRA owners and retirement plan participants who were diagnosed with the virus, those whose spouses or dependents were diagnosed with the illness, and account holders who experienced certain adverse financial consequences as a result of the pandemic. IRS Notice 2020-50 expanded that definition to also include an account holder, spouse, or household member who has experienced pandemic-related financial setbacks as a result of:

A quarantine, furlough, layoff, or reduced work hours
An inability to work due to lack of childcare
Owning a business forced to close or reduce hours
Reduced pay or self-employment income
A rescinded job offer or delayed start date for a job

These expanded eligibility provisions enhance the opportunities for account holders to take a CRD.

The Notice clarifies that qualified individuals can take multiple distributions totaling no more than $100,000 regardless of actual need. In other words, the total amount withdrawn does not need to match the amount of the adverse financial consequence. (Retirement investors should consider the pros and cons carefully before withdrawing money.)

It also states that individuals will report a coronavirus-related distribution (or distributions) on their federal income tax returns and on Form 8915-E, Qualified 2020 Disaster Retirement Plan Distributions and Repayments. Individuals can also use this form to report any recontributed amounts. As noted above, individuals can choose to either spread the income ratably over three years or report it all in year one; however, once a decision is indicated on the initial tax filing, it cannot be changed. Note that if multiple CRDs occur in 2020, they must all be treated consistently — either ratably over three years or reported all at once.

Taxpayers who recontribute amounts after paying taxes on reported CRD income will have to file amended returns and Form 8915-E to recoup the payments. Taxpayers who elect to report income over three years and then recontribute amounts that exceed the amount required to be reported in any given year may “carry forward” the excess contributions — i.e., they may report the additional amounts on the next year’s tax return.

The Notice also clarifies that amounts can be recontributed at any point during the three-year period beginning the day after the day of a CRD. Amounts recontributed will not apply to the one-rollover-per-year rule.

Regarding plan loans, participants who delay their payments as permitted by the CARES Act should understand that once the delay period ends, their loan payments will be recalculated to include interest that accrued over the time frame and reamortized over a period up to one year longer than the original term of the loan.

Retirement plans are not required to adopt the loan and withdrawal provisions, so check with your plan administrator to see which options might apply to you. However, qualified individuals whose plans do not specifically adopt the CARES Act provisions may choose to categorize certain other types of distributions — including distributions that in any other year would be considered RMDs — as CRDs on their tax returns, provided the total amount does not exceed $100,000.

For more information, review IRS Notices 2020-50 and 2020-51, and speak with a tax professional.

_{1 Qualified beneficiaries may also treat a distribution as a CRD; however, nonspousal beneficiaries are not permitted to recontribute funds, as they would not otherwise be eligible for a rollover.}

The Shape of Economic Recovery

The Shape of Economic Recovery Most economists believe that GDP will turn upward in the third quarter, but it will take sustained growth to return the economy to its pre-recession level. On June 8, 2020, the National Bureau of Economic Research (NBER), which has official responsibility for determining U.S. business cycles, announced that February 2020 … Read more

Watch Out for Coronavirus Scams

Mad young female annoyed with scam or spam messages on smartphone, frustrated woman receive bad news on cell, confused girl get phone problems having no signal, bothered with not working device

The FTC has received over 20,000 COVID-19 related complaints since January 1, 2020. Source: Federal Trade Commission, April 2020

Fraudsters and scam artists are always looking for new ways to prey on consumers. Now they are using the same tactics to take advantage of consumers’ heightened financial and health concerns over the coronavirus pandemic. Federal, state, and local law enforcement have begun issuing warnings on the surge of coronavirus scams and how consumers can protect themselves. Here are some of the more prevalent coronavirus scams that consumers need to watch out for.

Schemes related to economic impact payments

The IRS recently issued a warning about various schemes related to economic impact payments that are being sent to taxpayers under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.₁ The IRS warns taxpayers to be aware of scammers who:

Use words such as “stimulus check” or “stimulus payment” instead of the official term, “economic impact payment”
Ask you to “sign up” for your economic impact payment check
Contact you by phone, email, text or social media for verification of personal and/or banking information to receive or speed up your economic impact payment

In most cases, the IRS will deposit the economic impact payment directly into an account that taxpayers previously provided on their tax returns. If taxpayers have previously filed their taxes but not provided direct-deposit information to the IRS, they will be able to provide their banking information online at irs.gov/coronavirus. If the IRS does not have a taxpayer’s direct-deposit information, a check will be mailed to the taxpayer’s address on file with the IRS. In addition, the IRS is reminding Social Security recipients who normally don’t file taxes that no additional action or information is needed on their part to receive the $1,200 economic payment — it will be sent to them automatically.

Fraudulent treatments, vaccinations, and home test kits

The Federal Trade Commission is tracking scam artists who are attempting to sell fraudulent products that claim to treat, prevent, or diagnose COVID-19. Currently, the U.S. Food and Drug Administration (FDA) has not approved any products designed specifically to treat or prevent COVID-19.

The FDA had warned consumers in March to be wary of companies selling unauthorized coronavirus home testing kits. On April 21, 2020, the FDA authorized the first coronavirus test kit for home use. According to the FDA, the test kits will be available to consumers in most states, with a doctor’s order, in the coming weeks. You can visit fda.gov for more information.

Phishing scams

Scammers have begun using phishing scams related to the coronavirus pandemic in order to obtain personal and financial information. Phishing scams usually involve unsolicited phone calls, emails, text messages, or fake websites that pose as legitimate organizations and try to convince you to provide personal or financial information. Once scam artists obtain this information, they use it to commit identity or financial theft. Be wary of anyone claiming to be from an official organization, such as the Centers for Disease Control and Prevention or the World Health Organization, or nongovernment websites with domain names that include the words “coronavirus” or “COVID-19,” as they are likely to be malicious.

Charity fraud

Many charitable organizations are dedicated to helping those affected by COVID-19. Scammers often pose as legitimate charitable organizations in order to solicit donations from unsuspecting donors. Be wary of charities with names that are similar to more familiar or nationally known organizations. Before donating to a charity, make sure that it is legitimate and never donate cash, gift cards, or funds by wire transfer. The IRS website has a tool to assist you in checking out the status of a charitable organization at irs.gov/charities-and-nonprofits. Protecting yourself from scams Fortunately, there are some things you can do to protect yourself from scams, including those related to the coronavirus pandemic:

Don’t click on suspicious or unfamiliar links in emails, text messages, and instant messaging services.
Don’t answer a phone call if you don’t recognize the phone number — instead, let it go to voicemail and check later to verify the caller.
Never download email attachments unless you can verify that the sender is legitimate.
Keep device and security software up-to-date, maintain strong passwords, and use multi-factor authentication.
Never share personal or financial information via email, text message, or over the phone.
If you see a scam related to the coronavirus, be sure to report it to the FTC at ftc.gov/complaint.

_{1 Internal Revenue Service, IR-2020-64, April 2, 2020}

IMPORTANT DISCLOSURES Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2, which is available without charge upon request. The opinions expressed herein are those of Ballast Advisors, LLC and are subject to change without notice.

What does the economic impact of the novel coronavirus (COVID-19) mean for your financial plan?

This is the question many individuals and families are asking in today’s uncertainty. Aside from the obvious concerns for the health and safety of the community, market volatility is stressful and economic slowdown may be hard on business owners and employees as we navigate this pandemic as a society.

Ballast Advisors, a Registered Investment Advisor (RIA) and fiduciary firm based in the Twin Cities, guides individuals and families to achieving their goals using financial planning and time-tested investment strategies. We caught up with Managing Partner Paul Parnell to have him answer a few frequently asked questions during this period of financial uncertainty and anxiety.

Will this recession last?

Steep declines in the stock market have often coincided with a downturn in the economy. There are still many unknowns, but since World War II, 9 out of the past 12 Bear markets have resulted in recessions, defined as the market dropping 20% or more from its peak.

“It’s reasonable at this time to prepare for a longer-term recession,” says Paul Parnell. “It is hard to keep emotions out of it, but there are smart steps that you can make now to stay financially sound.”

Should I throw in the towel?

Panic selling or “capitulation” is what you begin to see in these uncertain times, but it is important investors understand some key points.

“If you have a solid financial plan, you’re already prepared for this ahead of time,” says Parnell. “At Ballast Advisors, we work with our clients to have balanced and diversified investment portfolios and we help to mitigate risk depending on our client’s age and stage of retirement. Generally, most people gradually reduce risk as they approach retirement.”

Of course, a diversified portfolio is no guarantee that you won’t suffer volatility, but long-term strategies are based on the idea that financial markets are historically cyclical.

“We start to see very high emotions in times like this, and people are tempted to throw in the towel,” says Parnell. “And while it’s very difficult to watch, capitulation can be a detriment for your entire portfolio. For example, after the lows of 2009 recession we saw markets increase 45-54% from the bottom. If you miss this opportunity, it may impact you forever.”

What changes do I need to make in spending or saving?

In addition to your long-term investments, Ballast Advisors suggests this is a good time to review your budget.

“Discretionary expenses are the first ones to go,” says Parnell. “If you don’t have to reduce savings, don’t.” Keeping with the philosophy of buy low and sell high, Paul adds, “Try to increase savings, as long as you have the proper cash reserve.”

With the mandated shutdowns, Ballast Advisors suggests you save money on travel, activities, dining out, and similar activities. You may also find savings by negotiating new rates on services, as companies may rather keep you as a customer than lose your business.

“Typically having 3-6 months, salary in cash reserve is recommended. If you are dealing with uncertainty with unemployment, you should increase that to 12 months,” he says. After that is established, Parnell recommends looking at opportunities to increase long-term investment savings.

“Market downturns are generally temporary. You stand to make money on dollars you invested in a downturn,” says Parnell. “We saw it happen after 9-11 and in 2009. If you’re a retiree, and you supplement income from your investments, cutting your current distributions can make a big difference when markets recover.”

Emotions and Money

“I love Warren Buffet’s quote on the stock market and investing: ‘Be fearful when others are greedy and greedy when others are fearful’,” says Parnell. “You cannot tie emotions to decisions about money.”

Anxiety levels are high for all investors currently. But it’s important to keep perspective, and he suggests limiting your exposure to media that tracks the market volatility daily.

“I cannot emphasize that enough to clients, I’d be a nervous wreck if I watched the markets on TV all day, and I am in this business,” he remarks. “We believe in staying well grounded.”

These times are hard, no doubt, however, this is the reason you do financial planning, to plan for the uncertainties in life. This has worked in the past and it will guide you in the future.

“If you are looking at retirement in 5-10 years, you should be looking for a financial advisor, it’s critical,” says Parnell. “Your portfolio should begin to match what it will look like in retirement.”

For more information on how Ballast Advisors helps clients with personal financial planning, executive benefits, and saving for retirement, see www.ballastadvisors.com/.

IMPORTANT DISCLOSURES

The opinions expressed are those of Ballast Advisors, LLC. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass.

What You Need to Know About the SECURE Act

Recently Congress passed both the SECURE Act and the CARES Act into law. Although these Acts are comprehensive in aggregate, Ballast Advisors financial professionals have comprised a summary of the sections we want our clients to understand.

If you have questions, please contact your financial advisor.

SECURE ACT SUMMARY

Required Minimum Distributions (RMDs) to Begin at Age 72

Section 114 of the SECURE Act delays the commencement of Required Minimum Distributions (RMDs) from most retirement accounts until age 72 (from the previous beginning date of age 70 ½.)

Retirees will still be able to delay their first RMD until April 1^stof the year following the year for which they must make their first RMD. So, a retiree turning age 72 on January 24, 2021 has until April 1^st, 2022 to take their first RMD (but will have to take two RMDs during 2022, one for 2021 and one for 2022).

Qualified Charitable Distributions Still Allowed at Age 70 ½

Even though RMDs don’t begin until age 72 under the SECURE Act, Qualified Charitable Distributions (QCDs) are still allowed beginning at age 70 ½. A QCD allows a taxpayer to distribute amounts directly from their IRA to a charity, and such distribution is not includable in income (up to $100,000). Once the taxpayer reaches age 72, the QCD will be allowed to reduce his or her RMD, just as before.

Traditional IRA Contributions Allowed After Age 70 ½.

Beginning in 2020, anyone—regardless of age—will be allowed to contribute to a Traditional IRA, provided such person has earned income (income from wages or self-employment). So, if a taxpayer is working, or has a spouse who is working, he or she can continue to contribute to a traditional IRA after age 70 ½.

End of the ‘Stretch’ IRA

The end of the ‘stretch’ IRA for most non-spouses. The stretch IRA allowed designated beneficiaries to stretch distributions over their life expectancy after inheriting an IRA. The new law requires the entire inherited IRA to be distributed by the end of the 10^th year following the year of inheritance. However, there are no RMDs, so beneficiaries can choose to liquidate the inherited IRA over several years or all at once, if it is emptied by the end of the 10^th year.

This new rule applies to both traditional and Roth IRAs. Since Roth IRA distributions are tax-free, waiting until the 10^thyear to empty the Roth IRA can be a good strategy.
Minor children of the original retirement account owner aren’t subject to the 10-year rule until they reach the age of majority.

Inclusion of Student Loans and Apprenticeships for Qualified Education Expenses From 529 plans

Expenses for Apprenticeship programs are now included in Qualified Higher Education Expenses, provided the program is registered and certified with the Department of Labor.

Also, “Qualified Education Loan Repayments” have been included as qualified higher education expenses. Such distributions from a 529 plan used for student loan repayments are limited to a lifetime amount of $10,000.

Source:  Setting Every Community Up for Retirement Enhancement Act of 2019 – SECURE

Ballast reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Past performance is not indicative of future results. Nothing contained herein constitutes an offer to buy or sell a particular security or investment strategy. The material presented is derived from a third-party source believed to be reliable, but its accuracy and certainty cannot be guaranteed.

Ballast Advisors, LLC is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Ballast, including our investment strategies, fees and objectives, can be found in our ADV Part 2 which is available upon request.

Consolidated Appropriations Act Provides Relief to Individuals and Businesses

December 31, 2020January 12, 2021

The Bull Is Back… Will It Keep Charging?

September 11, 2020September 11, 2020

IRS Outlines Changes to Health-Care Spending Rules Under CARES Act

August 5, 2020

IRS Clarifies COVID-19 Relief Measures for Retirement Savers

August 5, 2020

The Shape of Economic Recovery

July 28, 2020July 28, 2020

Watch Out for Coronavirus Scams

May 6, 2020

What You Need to Know: CARES ACT

Recently Congress passed both the SECURE Act and the CARES Act into law. Although these Acts are comprehensive in aggregate, Ballast Advisors financial professionals have
comprised a summary of the sections we want our clients to understand.

If you have questions, please contact your
financial advisor.

CARES ACT SUMMARY

INDIVIDUALS

Provides rebates of up to $1,200 for single individuals and $2,400 for joint filers. This rebate is subject to a phase-out beginning at adjusted gross income of $75,000 and $150,000 respectively. Taxpayers with qualifying children will receive an additional $500. The rebates will be based upon 2019 returns if already filed. If 2019 has yet to be filed, then rebates will be based upon the 2018 returns. The IRS is still reviewing multiple methods of delivery.
- Advanced refund payments are based on your most recent tax return. If you have filed a 2019 return it will be based on your 2019 income. If you have not yet filed a 2019 return it will be based on your 2018 income. If you don’t qualify based on your 2018 or 2019 tax return, you may on your 2020 tax return, in which case your rebate will be received in 2021.
- To qualify, the taxpayer must have an SSN and not be a dependent of another taxpayer.
Provides waivers on the 10% early withdrawal penalty for distributions of up to $100k made from qualified retirement plans and IRAs, provided these distributions were made because your finances were directly impacted by COVID-19. You may return your taxable withdrawal over three years without consideration of the maximum retirement plan contribution limit.
Loosens loan thresholds and repayment terms for loans taken out from certain retirement plans. Please contact your employer to determine the specifics of their loan rules.
Waives RMDs (Required Minimum Distributions) from retirement plans including IRAs. RMDs already taken in 2020 generally cannot be returned to the retirement plan.
Allows an above the line deduction of up to $300 of cash charitable contributions for those individuals claiming the standard deduction.
- Only cash contributions are allowed for the $300 deduction. Contributions to a Donor Advised Fund or a private foundation do not qualify for the $300 above the line deduction. This provision will not expire in 2020, making it available in future years.
Allows a relaxation of the income limit for charitable contributions for those individuals itemizing their deductions on Schedule A.
- Section 2205 provides that the limitations on charitable contributions for Schedule A are repealed for 2020, so cash contributions can offset 100% of income.

Source:   Coronavirus Aid, Relief, and Economic Security Act

BUSINESSES

Section 2302 provides that all employer payroll taxes for 2020 could be deferred. Employers would remit 50% on 12-31-2021 and 50% on 12-31-2022 with no interest charged in the meantime. This rule also applies to self-employment taxpayers.
Section 2301 creates an employee retention tax credit for employers. The employer will get a refundable credit for employment taxes paid to employees. Eligible employers have a business that was fully or partially suspended during 2020 because of an order from a government authority. Also, employers can qualify if they were open and revenue was down 50% or more from the prior year quarter over quarter. Qualifying wages are up to $10,000 per employee for the year. Employers who take a small business interruption loan are not eligible.
Section 2307 fixes the TCJA definition for qualified improvement property so it will have a 15-year life span. With a 15-year life span on qualified improvement property, 100% bonus depreciation would be allowed on the qualified improvement property, retroactive to 2018. Amended returns could be filed for 2018 and 2019 if already filed.
Modifies the charitable contribution limitations based on income for corporations and extends this to donation of food inventory.
Section 2206 expands the employer paid tuition assistance to include payment of student loans.
- An employer can pay up to $5,250 of tuition or student loans tax-free for an employee in 2020. In 2021 the rule reverts to tax-free for only tuition.
Section 2303 modifies the rules around Net Operating Losses. NOLs created in 2018, 2019, 2020 can be carried back 5 years with no 80% limitations. So, losses from 2018, 2019, or 2020 could be carried back 5 years and used to fully offset income in prior years for individuals and C Corps.
Section 2305 modifies AMT credit rules for C Corporations.
Section 2306 modifies the Section 163(j) interest expense limitations. They are modified to allow interest expense of 50% of adjusted taxable income instead of 30% for the 2019 and 2020 tax years. The 163(j) limitation returns to a 30% limit in 2021.
Provides additional funding options including the Paycheck Protection Program (referred to as PPP) under SBA 7a program guidance. The PPP does have a potential loan forgiveness portion.

Source:   Coronavirus Aid, Relief, and Economic Security Act

Consolidated Appropriations Act Provides Relief to Individuals and Businesses

December 31, 2020January 12, 2021

The Bull Is Back… Will It Keep Charging?

September 11, 2020September 11, 2020

IRS Outlines Changes to Health-Care Spending Rules Under CARES Act

August 5, 2020

IRS Clarifies COVID-19 Relief Measures for Retirement Savers

August 5, 2020

The Shape of Economic Recovery

July 28, 2020July 28, 2020

Watch Out for Coronavirus Scams

May 6, 2020

Bear Markets Come and Go

If you are losing sleep over volatility driven by a cascade of disheartening news, it may help to remember that the stock market is historically cyclical.

The longest bull market in history lasted almost 11 years before coronavirus fears and the realities of a seriously disrupted U.S. economy brought it to an end.

If you are losing sleep over volatility driven by a cascade of disheartening news, it may help to remember that the stock market is historically cyclical. There have been 10 bear markets (prior to this one) since 1950, and the market has recovered eventually every time.

Bear markets are typically defined as declines of 20% or more from the most recent high, and bull markets are increases of 20% or more from the bear market low. But there is no official declaration, so in some cases there are different interpretations regarding when these cycles begin and end.

On average, bull markets lasted longer (1,955 days) than bear markets (431 days) over this period, and the average bull market advance (172.0%) was greater than the average bear market decline (-34.2%).

_{*The intraday low marked a decline of -20.2%, so this cycle is often considered a bear market.}

The bottom line is that neither the ups nor the downs last forever, even if they feel as though they will. During the worst downturns, there were short-term rallies and buying opportunities. And in some cases, people have profited over time by investing carefully just when things seemed bleakest.

If you’re reconsidering your current investment strategy, a volatile market is probably the worst time to turn your portfolio inside out. Dramatic price swings can magnify the impact of a wholesale restructuring if the timing of that move is a little off.

A well-thought-out asset allocation and diversification strategy is still the fundamental basis of good investment planning. Changes in your portfolio don’t necessarily need to happen all at once. Try not to let fear derail your long-term goals.

The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Asset allocation and diversification are methods used to help manage investment risk; they do not guarantee a profit or protect against investment loss. If you are losing sleep over volatility driven by a cascade of disheartening news, it may help to remember that the stock market is historically cyclical.

The S&P 500 is an unmanaged group of securities that is considered to be representative of the U.S. stock market in general. The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index. Past performance is not a guarantee of future results. Actual results will vary. Source: Yahoo! Finance, 2020 (data for the period 6/13/1949 to 3/12/2020)

_{IMPORTANT DISCLOSURES Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.}

_{Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2, which is available without charge upon request. The opinions expressed herein are those of Ballast Advisors, LLC and are subject to change without notice}