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Steve's April 2020 Newsletter

Important Notices: IRA and RMD 2020 Changes

- In 2020 there will be a temporary waiver of required minimum distributions (RMD) from retirement plans. The new CARES Act waives the RMD rules for 2020 for certain defined contribution plans and IRAs. The waiver DOES NOT include Inherited IRA's. Individuals are usually required to take mandatory distributions starting at age 72; however distributions are not required during 2020. This means that instead of taking money out this year, retirees can keep their investments growing.

- In 2020 there is also a waiver of early withdrawal (under 59 1/2) penalty for COVID-19 withdrawals from qualified retirement plans. The bill provides that the 10% penalty for early withdrawal from a qualified retirement account is waived for distributions up to $100,000 for virus related purposes. It is taxed over three years, but the taxpayer has the option to repay the amount to the retirement plan within the three year period.

Uncharted Territory!

In past years it was impossible to write about the direction of the stock markets without mentioning some of the main drivers; the government's role in lowering personal and corporate taxes, lower interest rates, higher tariffs, trade barriers, and deregulation along with a decade of corporate stock buybacks, the markets were driven higher. Just seven weeks ago you could use history and past economic scenarios as a logical determiner of future direction of the markets. That is no longer the case!

It is now impossible to predict the market's direction within the context of the COVID-19 Virus Pandemic. The reason for the current market pessimism is just plain sad! The human toll will be staggering! The still spreading coronavirus means that Americans will have to keep themselves sheltered for a longer than expected period of time. Like you, Robin and I are dealing with the necessary disruptions to life at home and work. If that weren't stressful enough to all Americans, we fear for the health of our family and friends, the economy is reeling, we are sheltering at home, yields on savings are trending to zero, we are probably in a recession, retirement accounts have been hit, and job prospects for millions of Americans are uncertain!

In the near term, markets will be driven by virus news that helps investors understand how long lockdown conditions might last; the number of new cases, virus deaths, the trend of the "curve," developments in implementing a fast and simple virus test, the success of the CARES Stimulus, the introduction of a treatment to help ameliorate the devastating upper respiratory symptoms that lead to death, and hopefully a vaccine.

The markets could be dramatically oversold! If the stimulus programs take hold, the virus is controlled and economic damage is limited we could see a positive year. It’s tough to forecast much beyond that given we don’t know the full extent of economic damage, but an earnings recovery by the end of the year is possible.

Either way, COVID-19 will further change American society! This is more than a painful experience for investors. Economic inequality in the US was already a source of social strife even with low unemployment levels before the virus. A deteriorating economy, high unemployment, economic hardship, and now a huge national debt that will eventually lead to tightened government spending could exacerbate the issue.  It remains to be seen whether Americans will be brought together by this challenge, or further separated!

As always, I am here to help answer your questions about these uncertain markets as well as strategies to help with other financial matters.

"Health is Wealth"

Steve Newman