In normal years, the due date for filing individual federal income tax returns is April 15th. This year, the IRS moved the deadline to July 15th due to the coronavirus pandemic. Fortunately for taxpayers, this 90-day extension of the deadline will not cause any interest or penalties. This relief also applied automatically to all taxpayers. Unlike a normal extension, no additional forms were required.
Need more time? You can get an extension.
If you can’t file your return by the July 15th deadline, you can still get an automatic extension until October 15th by using IRS Form 4868. This form can also be filed electronically. Filing for an extension until October 15th will not prevent penalties and interest. The IRS encourages to pay in full with the extension request. If that isn’t possible, information on payment options are available on www.IRS.gov.
Always file a return, and pay what you owe.
One of the biggest tax mistakes you can make is to not file a return because you owe money to the IRS. If your return shows you owe tax, always file on time and pay by the due date if possible. If you can’t pay the entire amount, file your return, pay what you can, and make arrangements with the IRS to pay the difference. You may owe interest and penalties on the unpaid tax, but filing your return on time will help you avoid additional penalties. It will also give you the option to work with the IRS to pay the unpaid balance.
Having a few extra months for tax filings was a welcome bit of good news amid the pandemic. That extra time is almost over, and tax day is right around the corner. Be sure to file on time, pay on time, and don’t let taxes derail your financial plan.
Matthew A Treskovich | CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC, FLMI
Chief Investment Officer
This year has been a rollercoaster ride. The COVID-19 crisis and the ensuing shock to the global financial markets have captured the headlines and changed the way we live. With everything that has occurred, it is not surprising that the SECURE (Setting Every Community Up for Retirement Enhancement) Act, which took effect January 1, 2020, has been nearly forgotten. The SECURE Act was drafted to help Americans save for retirement, and made several positive changes such as raising the age for required minimum distributions (RMD), as well as removing the age limit for making IRA contributions. This provided a great benefit to savers, but the SECURE Act also had some downsides, such as the demise of the “Stretch IRA”.
The SECURE Act and Inherited IRAs
For over 30 years, the “Stretch IRA” has been the cornerstone of estate planning as it relates to passing on wealth held in retirement plans. By handing down your retirement plan or IRA to a “designated beneficiary”, the required minimum distributions could be “stretched out” over the beneficiary’s life expectancy, providing a tax efficient means of passing on wealth. The SECURE Act changed all that by requiring most IRA beneficiaries to distribute the account completely within ten years beginning the year following the account owner’s death. There are exceptions for five special types of beneficiaries, now referred to as “eligible designated beneficiaries”, which includes the surviving spouse of the account owner, the minor child of the account owner, a disabled beneficiary, a chronically ill beneficiary, and a beneficiary less than 10 years younger than the account owner. These eligible designated beneficiaries can for the most part follow the old rules. Also, the changes primarily only apply to retirement accounts inherited beginning in 2020.
Those who have retirement plan beneficiaries that do not meet the definition of “eligible designated beneficiaries” should review their estate plan in light of these changes to determine if the current rules will require changes to their plan.
Other Estate Planning Implications
Trusts have long been used by estate planning attorneys as a valuable tool to distribute retirement accounts to beneficiaries while retaining some control over the distributions after the account owner’s death. As long as the trust was structured as a “see through” trust, meaning that there was a clearly identifiable person listed as beneficiary, then the retirement plan could be passed on to the trust and the required minimum distributions were based on the trust beneficiary’s life expectancy. But, the new rules create a problem – many trusts drafted prior to the SECURE Act no longer qualify for this special treatment, and the consequences can be significant. Instead of allowing the trust beneficiary to take distributions over their life expectancy, many of these trusts will now be forced to distribute the entire IRA account balance to the beneficiary within ten years following the account owner’s death. Some trusts, written as “conduit trusts”, will now prevent distributions until year ten, at which time the entire account balance must be distributed, resulting in a hefty tax bill.
Trusts are complex documents, and there are many different types which are each affected differently by the SECURE Act. If you have a retirement account or IRA with a trust listed as beneficiary, you should meet with your estate planning attorney and trusted financial advisor to determine how you are affected.
Rick Bernard | MBA
It is with great excitement we announce that Nolen B. Bailey | CFP®, CRPS®, ARPC, has been named a Partner at CPS Investment Advisors in downtown Lakeland. He joins Peter Golotko, James Luffman, and Michael Riskin as an owner in the investment firm.
“It is my honor and privilege to work with Nolen Bailey and I am excited to bring him in as an owner. Nolen has proven himself in the industry. He is a leader and a great businessman. I am confident the future of CPS is brighter with Nolen on board.” – Peter Golotko | CPA/PFS, MBA, President of CPS Investment Advisors.
“We are beyond excited to have Nolen as a new owner/partner of CPS Investment Advisors. Nolen has worked extensively to build our 401(k)/retirement plan business making it the fastest growing part of our business.” – James Luffman | CPA/PFS.
“We are incredibly blessed to have Nolen join the ownership group at CPS. Since day one, Nolen has exemplified the work ethic, integrity, and commitment to our clients that has been the strength of CPS for over 45 years. The addition of Nolen will help solidify our growth and stability at CPS.” – Michael A Riskin | CPA/PFS, CFP®, MST.
Nolen has been with CPS Investment Advisors since 2011, and he continuously strives to provide the absolute best service and financial expertise for the firm’s clients. As a Partner, a CERTIFIED FINANCIAL PLANNER™ and the Director of the firm’s Retirement Plan Services division, Nolen has a genuine passion for helping people reach their specific financial goals. He understands that everyone’s financial picture is unique, so he has always taken a collaborative, down-to-earth approach with clients, to make sure that they are comfortable with the path ahead, and confident that they are staying on track.
Nolen also holds the Chartered Retirement Plans Specialist (CRPS®) designation through the College for Financial Planning, as well as the Accredited Retirement Plan Consultant (ARPC) designation through the Society of Professional Asset Managers and Record Keepers (SPARK).
He is a graduate of both Leadership Lakeland Class XXX and Leadership Polk Class X, and was awarded Future Mayor of Lakeland by EMERGE Lakeland in 2014.
He serves on several local boards and executive committees, as he and his wife, Ashley, are proud and passionate supporters of many local non-profits and organizations.
ABOUT CPS INVESTMENT ADVISORS
CPS Investment Advisors is a fee-only, independent financial advisory firm headquartered in Lakeland, Florida, celebrating 45 years helping clients achieve their version of financial independence. As fiduciaries, we are legally and ethically obligated to act in your best interest… never our own.
The CARES Act was passed to help average Americans through the Coronavirus crisis. It still takes good financial decision making to put this money in your pockets. Three common COVID money mistakes involve taking funds from retirement accounts. Avoiding these mistakes can help you save on taxes and keep your finances on track for the long run.
Don’t borrow from your retirement accounts.
The CARES act made it easier for participants in 401(k) plans to take loans from the plan. Taking a loan from a retirement account should be the last option you consider. The loan will need to be repaid with interest. Money you borrow from your retirement plan today won’t be working for you. Money that you withdraw or borrow today won’t be there when you need it in retirement.
Don’t take a hardship withdrawal from your 401(k) or IRA
Most withdrawals from retirement accounts before age 59 ½ are subject to a 10% tax penalty. The CARES act waives this penalty for certain withdrawals if you have suffered financial hardship because of the pandemic. Just because you can take an early withdrawal from your retirement plan does not mean it is a wise decision. Withdrawals are still subject to income taxes. You will also lose the benefit of long-term tax-deferred growth on the amount you withdraw. A retirement plan hardship withdrawal should be the last place you go for cash, and then only under dire circumstances.
Don’t take this year’s RMD unless you actually need the money.
The CARES act has a special perk for those who are already in retirement and are taking required minimum distributions. Retirees have the option to skip this year’s required minimum distribution. Skipping the required minimum distribution means you don’t have to pay taxes on that money until you withdraw it in the future. If you don’t need the cash today, allow it to continue to grow tax-deferred instead.
If you’ve already taken an RMD this year and want to undo it, there are ways to get the money back into your retirement plan and avoid taxes. Avoiding the tax may require some planning and will be easiest if done before July 15th. If you’ve already taken an RMD this year and want to reverse it, seek the advice of a CPA tax professional sooner rather than later.
Although the COVID-19 pandemic has created financial stress for many of us, long-term planning is still important. Before you tap into retirement funds, think about your financial plan. This means leaving retirement savings alone unless there is no other choice.
Matthew A Treskovich | CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC, FLMI
Chief Investment Officer
We have all been in a position, at least once in our lives, which required us to trust someone with something very important to us, sometimes by choice, sometimes by necessity. Over the years, I have met many individuals and families who have had that trust broken a time or two. When this happens with a Financial Advisor, skepticism and mistrust can, unfortunately, keep people from taking much needed action with their financial goals.
If you are at a point in your financial life where you are tired of stressing over market performance, are stressed about what current events mean for your portfolio, or simply have financial matters that keep you up at night, then consider working with a financial advisor. Do not let the need for a financial advisor go unmet, due to any of the following myths.
Myth #1: I Don’t Have Enough Money to Work with a Financial Advisor.
This is the most cited reason why many individuals or families do not seek the advice from a Financial Advisor. While it is true that many advisors will have a minimum amount of investable assets that they require from potential clients, it is also true that many do not. Regardless of how much you have or think you may have; it is important to reach out to different advisors and start a conversation. Not every advisor has a minimum and many are willing to work with you to help you grow. There’s an advisor out there for everyone.
Myth #2: Financial Advisors are too Expensive.
We have all seen the movies where stockbrokers drive expensive cars, fly in private jets and vacation on luxury boats, dare I say: Wolf of Wallstreet? No wonder some folks are afraid of them! One of the major considerations when working with a financial advisor is both how much and how an advisor should be paid. Historically, advisors were stockbrokers and were paid on commissions. As the industry evolved, some financial advisors switched to an asset under management fee, where advisors are paid a fee based on the amount of assets they manage. Now, some advisors are paid on a retainer basis, or even a combination of these methods. While there are pros and cons to each method of payment or compensation, often clients are unsure of how their advisor is being paid. Never be afraid to ask a potential advisor, or your current advisor, how they are being paid and if they are required to put your best interests before their own.
Myth #3: I Can Reach My Goal without a Financial Advisor.
Absolutely, it is possible for you to reach your goal without a financial advisor but having an advisor can make a huge difference. Why? The simplest answer is that we are all emotionally attached to our finances. Many of us work for years trying to accumulate wealth and it isn’t always so clear what to do with that wealth when you’re emotionally tied to it. Having a trusted, fiduciary advisor to guide you through decisions or make recommendations can be a massive help, especially during stressful times. Additionally, sometimes our financial situations are extremely technical and could use someone professionally trained to make the right decision.
Anthony Corrao | CFP®
Simply put, a fiduciary is someone who has a legal obligation to put your interest ahead of their own. A fiduciary financial advisor is a financial advisor who is legally obligated to act in your best interest when providing financial advice. Now, if you are like most individuals, you are probably thinking “That makes a lot of sense. Don’t all advisors make recommendations in my best interest?” Sadly, the answer is… no, not at all.
Something that began to gain a lot of notoriety in the financial industry in the past few years has been the term fiduciary and what it means for advisors and their clients. In 2016, the Department of Labor tried to put in place a Fiduciary Rule. Ultimately, this rule was struck down by an appeals court, but the effects of its message continue to live on. One of the main effects of this rule that continues to live on was the divide between a fiduciary advisor and a non-fiduciary advisor.
Many financial advisors are not fiduciaries. Non-fiduciary advisors are held to a lower standard, the suitability standard. Suitability is a standard in which the advisor only needs to believe that a recommendation is merely suitable based on a client’s financial situation, not in their best interest. Again, if you are like most clients you may be thinking, “I want to do what is best for me, not something that is merely suitable. Why would my advisor recommend something that is suitable and not in my best interest?”
Often, the difference between suitable and your best interest for a non-fiduciary advisor is decided by how much the advisor can make. Consider a client and an advisor weighing two similar investments, one of which pays a higher commission than the other. A fiduciary would be legally bound to recommend the one with lower fees, avoiding the higher commissioned product. A nonfiduciary advisor doesn’t have too. A non-fiduciary advisor can recommend an investment or a product that pays them higher fees even though a less expensive option may exist. That is a massive conflict of interest. Suitability does not require an advisor to place your interest of their own, nor does it require the advisor to avoid such conflicts. Only fiduciary advisors are required to fully disclose all material information and avoid conflicts of interest.
Not all non-fiduciary advisors are bad guys that are out to charge you as much as possible, but it is important to understand, they are legally allowed to do so, and some do. At CPS Investment Advisors, we are fiduciary financial advisors. We do not use any investment products that charge commissions, we only charge a single transparent fee for management. When evaluating potential advisors ask them if they are a fiduciary. If the answer is anything other than yes, or if the advisor says, “We are fiduciary-like”, then run away. You expect your doctor to make recommendations with your best interest at heart, so why don’t you expect the same from your financial advisor?
Michael Scott | MBA, CFA
Senior Portfolio Analyst
The House and Senate recently passed new PPP legislation, The Payroll Protection Program Flexibility Act, signed into law by President Trump on June 5, 2020.
The Senate unanimously passed the legislation last Wednesday night (June 3rd) in a rush knowing that businesses still had until June 30th to apply for funds through the program. Below are some of the highlights for businesses to be aware of in regards to the PPP loan:
Payroll Expenditure Calculation
The requirement of using 75% of your PPP loan towards payroll and related expenses has been dropped to 60% with a cliff. If 60% of your loan is not used towards payroll, none of the loan will be forgiven. Remember that the other 40% must still be used towards the qualified expenses originally listed such as mortgage interest, rent or utilities.
Loan Period Extended
Formerly, the loan period to use these funds was 8 weeks from date of receipt or from the next available payroll. This period has now been extended to 24 weeks or until December 31, 2020; whichever comes first. This extension of time allows borrowers to adjust their employee workforce to pre-pandemic levels.
Also, business owners realize that some employees were making more in unemployment than when hired previously. If employees turned down good faith offers or if employers could not find enough qualified employees, the new legislation allows the borrow to adjust and exclude that information from the final calculation.
Payment Period Extension
Previously, PPP legislation was allowing a 2-year loan period at 1% interest. This period of payback has also been extended to five years. Existing PPP loans can also be extended if both parties agree on the new terms. Meet with your lender to find out.
Legislation can change very quickly, as we have absolutely seen during this economic crisis. It’s a great value to lean on your trusted advisor to stay on top of these changes to ensure you’re making the best choices for your business.
Derek M Oxford | CFP®, AEP®