Bob’s Journal for 4/2/20

Sharing Notable Events That Grabbed My Attention This Week

The Coronavirus Aid, Relief, and Economic Stimulus (CARES) Act rolled through Congress last week, and the President signed it on Friday.

The law contains many provisions. I want to cover a few that are of most interest to my readers and that seem to raise a lot of questions.

Required minimum distributions (RMDs) from IRAs, 401(k)s and other qualified retirement plans are suspended, or waived, for 2020. The waiver also applies to 403(b) accounts, SEP IRAs and SIMPLE IRAs. You might recall that in 2009, RMDs also were suspended for a year.

The waiver applies to all RMDs, inherited accounts as well as those of the original owner.

Of course, if you need or want to take distributions from your accounts, you can do so. The law only suspends the requirement that you take a distribution even when you don’t want or need it.

The suspension complicates things for some people, because the SECURE Act, enacted last December, changed the beginning date for RMDs. Anyone who turned age 70½ by the end of 2019 was subject to the old rules. The first RMD was for the year he or she turned 70½, but it didn’t have to be taken until April 1 of the following year.

That means people who turned 70½ in 2019 and didn’t take their first RMDs already have a long RMD holiday. They don’t have to take an RMD until the end of 2021.

People who turn 72 in 2020 were supposed to take their first RMDs in 2020 or no later than April 1, 2020. But now the 2020 RMD is suspended. They don’t have to take the first RMD until the end of 2021.

What if you already took the RMD for 2020 and now don’t want the taxable income?

You might be able to return the distribution to the IRA. Remember that an IRA distribution is tax-free if you roll it over to the same IRA or another qualified retirement plan within 60 days of the distribution. So, you can return the distribution to the same IRA or another one within 60 days. If you took an RMD from a 401(k) plan, you can return it to the same plan (if the plan sponsor allows it) or roll it over to an IRA as long as it is done within 60 days of the distribution.

Should you avoid an RMD simply because Congress allows it in 2020?

Maybe not. RMDs will be reinstated next year, and you might want to get the money out of your IRA now. Deferring the RMD might only increase future RMDs.

Try to anticipate your tax brackets. Some people will be in a lower tax bracket this year, because the bad markets and economy are reducing their incomes. For them, this would be a good year to take the distribution anyway.

If you anticipate future tax rates to be higher because of legislation or changes in your income, consider taking the distribution in 2020.

The suspension of RMDs also makes it less expensive to convert some or all of a traditional IRA into a Roth IRA. Normally, you have to take the RMD for the year before converting the rest of the IRA to a Roth IRA. Now, you don’t have to take the RMD. You can convert more of the IRA this year.

Also, consider making a qualified charitable distribution from the IRA. Sure, it won’t count against the RMD, because you don’t have to take an RMD in 2020. But it reduces the value of your IRA for future RMDs and allows you to transfer money out of your IRA to a charity without including the distribution in gross income.

Your Stimulus Money is Coming

One feature of the CARES Act is to send money to each individual or household in the country.

All U.S. residents with adjusted gross incomes up to $75,000 ($150,000 for married couples filing jointly) are eligible for a rebate of up to $2,400 for marrieds and $1,200 for other taxpayers. Taxpayers with AGIs above those amounts have the rebates phased out until they are eliminated for singles with AGI exceeding $99,000 and marrieds with AGIs exceeding $198,000.

An additional $500 will be paid for each dependent child in the household.

The IRS will use 2019 tax return filings to pay the rebates but will use 2018 returns if the 2019 return isn’t filed yet. In general, there’s no need to contact the IRS or file a separate form. The rebates will be issued automatically. The government payments will begin to be issued within the next three weeks. Most will be deposited electronically in the accounts listed on tax returns.

Initially, the Treasury Department said Social Security recipients who don’t earn enough other income to be required to file tax returns would have to file simple tax returns for 2019 to receive the rebates. But Treasury changed its approach under pressure from Congress. Now Social Security recipients who don’t file income tax returns will be issued rebates without having to take any action.

The Data

Most of the data still reflects the pre-pandemic period, but we’re starting to see some timely data.

New unemployment claims set another record, with 6.6 million new claims filed last week. That makes 10 million claims filed in two weeks. The numbers apparently are low. People who tried to file online or over the telephone reported difficulty getting through because the systems were overwhelmed by the historic demand.

The Kansas City Fed Manufacturing Index for March reflects the pandemic downturn and oil price decline. The index went to negative 17 in March from positive 5 in February.

The Dallas Fed Manufacturing Survey for March revealed a Production Index of negative 35.3 and a General Activity Index of negative 70.0. The Dallas region also is hit with a combination of the effects of the pandemic and the sharply declining price of oil.

Other manufacturing indexes for March held up better but still are negative.

The PMI Manufacturing Index declined to 48.5 from 50.7 in February.

The ISM Manufacturing Index fell only to 49.1 from 50.1 in February. This index has been below 50.0, indicating a contraction in the sector, for six of the past eight months.

The Chicago Purchasing Managers Index for March was reported as 47.8, compared to 49.0 in February. Analysts were expecting a much sharper decline to 40.0. A reading below 50.0 indicates business in the Chicago region is contracting, and this measure has been below 50.0 since last May.

Consumer Sentiment in March, as measured by the University of Michigan, fell to 89.1 from 95.9. That’s the fourth largest decline in 50 years of the index and is the lowest level since October 2016. The index was 101 in February.

But Consumer Confidence in March, as measured by The Conference Board, declined more significantly. The measure fell to 120 in March from 132.6 in February. Even so, analysts expected the number to be lower. The Conference Board said the decline is consistent with a severe contraction in the economy.

The ADP Employment report said the private sector job market decreased by 27,000 jobs. This was much better than analysts expected, but the data were collected only through March 12. It doesn’t include most of the shutdowns. This was the first monthly decline in this survey in 10 years.

Pending home sales were solid in February. They rose 2.4%, compared to a 5.2% increase in January. That’s a 9.4% increase over 12 months, which is the strongest 12-month figure in three years.

Home prices were climbing in January, according to the S&P Corelogic Case-Shiller Home Price Index. Prices increased at an annual rate of 3.9% in January compared to 3.7% in December.

Factory Orders in February were unchanged, compared to a 0.5% decline in January.

Personal Income and Outlays were solid in February. Income jumped 0.6%, which matches January’s increase. Consumer spending climbed 0.2%, which also matched January’s increase.

It’s no surprise that inflation is low. The PCE Price Index was up 0.1% in February and 1.8% over 12 months. Excluding food and energy, the index increased 0.2% for February and 1.8% over 12 months.

The Markets

The S&P 500 lost 0.26% for the week ended with Wednesday’s close. The Dow Jones Industrial Average fell 1.26%. The Russell 2000 retreated 3.01%. The All-Country World Index (excluding U.S. stocks) declined 3.06%. Emerging market equities lost 4.11%.

Long-term Treasuries rose 2.91% for the week. Investment-grade bonds dipped 0.70%. Treasury Inflation-Protected Securities (TIPS) fell 0.51%, while high-yield bonds rose 2.04%.

In the currency arena, the U.S. dollar declined 1.42%.

Energy-based commodities lost 6.44%. Broader-based commodities fell 3.78%. Gold declined 1.17%.

Bob’s News & Updates

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