As you are likely aware, the $2 trillion CARES Act passed this quarter included changes to tax filing deadlines and Required Minimum Distribution rules for this year, as well as plans to send individuals stimulus (ie. disaster-relief) checks.
Additionally, the Federal Reserve has worked fast to maintain liquidity in the markets, creating additional opportunities and risks to be aware of. Below is a summary of regulatory features that may likely impact you, along with our suggested next steps. Please let us know if you have any questions or would like to discuss any of this in greater detail.
Tax Filing Deadlines: Since the tax return filing deadline for 2019 income tax returns was extended to July 15, the deadline for making a 2019 contribution to an IRA also is extended to July 15, 2020. While we know the economy will take time to recover, likely well beyond July this year, it’s important to keep in mind that economic measures look back while markets look forward. As we have recommended before, it still makes sense to make contributions sooner rather than later and even consider accelerating your 2020 contributions as well, in order to have the monies invested during a down market.
Individual Stimulus Checks: If your Adjusted Gross Income for last year was under $75,000, you may be eligible to receive the $1,200 stimulus checks that there has been so much discussion about. Here is a link to a calculator to see what you might qualify for.
RMD Waiver for 2020: If you needed to take a Required Minimum Distribution from a retirement account, including Inherited IRA accounts or because you were over age 70 1/5 in 2019, you are now relieved of this obligation. The logic behind this change, is because RMD amounts are based on the preceding year-end value, that with the decline in the stock market since then, would force most people to take a larger weighting than the calculation intends.
Additionally, just to confuse you, prior legislation already changed the RMD rules to allow retirement account owners to delay their RMDs until age 72.
Paycheck Protection Program: For small business owners, it would be good to be aware of the Economic Injury Disaster Loans and Paycheck Protection Program loans guaranteed by the Small Business Administration. Funds have been made to be available to try to help struggling small businesses. Here is a link to a pdf titled The Small Business Owner’s Guide to the CARES Act put out by the U.S. Senate Committee on Small Business & Entrepreneurship.
Interest Rates: Lastly, the Feds dropped the lending rate to the floor very early in this crisis, mirroring the actions taken during the Great Recession, which had a dramatic effect in the bond markets and is trickling its way through to real estate sector. Today the 30-yr Fixed mortgage Rate is 3.9% APR, which is till relatively high compared to the Great Recession lows, due to high demand for financing. We believe this rate should soften as the first wave of opportunists moves through the system. If you’re considering refinancing a property at a lower rate, now’s the time to collect your statements, double check your credit report, and get on your mortgage rep’s radar. Know they are swamped right now and things may take a little longer. The more organized you are the more likely it is you’ll lock a good rate.
On the flip side, real estate lenders will likely be hit hard in this recession given that the CARES Act provides borrowers up to a year of forbearance on missed payments with no recourse. Even though Ginnie Mae, a U.S. agency that guarantees more than $2 trillion in mortgage-backed securities has announced plans to launch a Pass-Through Assistance Program to help mortgage servicers, we’re not so confident that legislators on both sides will agree on how to best address this issue. We have pre-emptively sold the mortgage-backed securities in our client’s portfolios and moved proceeds into cash temporarily as a risk mitigation tactic.
We are currently considering buying back into sector-specific REITs that are more recession resistant, as prices in that sector suffer broadly and create opportunities. This is part of a broader strategy we’re employing to diversify our alternative assets that ideally offer growth with a lower correlation to the stock and bond markets.