Holding the Helm

March 27, 2020

“Anyone can hold the helm when the sea is calm.”  

The 1st century BC Latin writer Publilius Syrus is credited with this statement.   Publilius, a contemporary of Cicero and a favorite of Julius Caesar, is also credited with the well-known statement “A rolling stone gathers no moss.”

The “sea” has been anything but calm for these past 5 weeks.  Since peaking on February 19, the S&P 500 experienced its fastest decline into Bear Market territory (20% decline from prior high) in just 22 days.  The “rout” continued through Monday, March 23.  Tuesday, March 24 began a 3-day rally ending with a Thursday, March 26 close that was an incredible 20% above the Monday, March 23 intraday lows.

We are by no means implying that we have navigated out of the storm.  A “rogue wave” could easily take the markets down into a new deep trough.  Alternatively, a proven prophylaxis that would cut off, reduce, or truncate the spread of COVID-19 could have us sailing up to the crest of the wave with calmer seas beyond.  No matter which way the winds may blow, we believe you should find comfort in knowing that the crew at APS is holding the helm and that we will ride this storm out together.

Stimulus Package:  Approved unanimously by the Senate, expected by the House on Friday, March 27.  The most immediate benefit for many Americans (and the economy!) is “the check”.  It is our understanding that a married couple with 2 children and household income below $150,000 would receive $3,400, tax free.  Over 80% of American adults will receive a payment.

Treasury Secretary Mnuchin has set a goal of getting the first payments out the door the week of April 6, which may be ambitious.  The checks will be direct deposited to each taxpayer’s bank account that is on file with the IRS.  Otherwise, the “check is in the mail.”  Here is a link to the check calculator:

https://www.washingtonpost.com/graphics/business/coronavirus-stimulus-check-calculator/

Excellent Retirement Plan Provisions: Here’s a thumbnail of two key provisions:

  1. No IRA Required Minimum Distribution (RMD) for 2020
  2. “Coronavirus-related distributions” prior to age 59½:  No 10% penalty on first $100k! 
    • 3-year income-tax spreading, and 3-year redeposit, if desired.

The “no RMD” provision may be of great value to our retired clients who otherwise would be required to make a taxable withdrawal this year.  This opens the opportunity to consider making a significant Roth IRA conversion to maximize the 24% tax bracket, have those funds grow tax free, and significantly reduce the SECURE Tax “hit” when transferred to your heirs. 

Furthermore, if the markets are still down, converting IRA equity funds “in kind” for deposit to the Roth provides an even more attractive potential benefit.  This strategy will require the coordination of 3 of our departments: Tax Planning, Investment Advisory, and Estate Planning.  We have our work cut out for ourselves.

Some of you, to fund your monthly SWP,  have already satisfied your RMD for the year.  We encourage you to sign up for YETPlan later this year so we can assess your tax situation.  In coordination with your Lead Financial Planner, we can determine if some amount of Roth conversion may be advisable.

Working Remotely:  Although we miss the comradery, the staff has continued their usual responsiveness to client needs by phone and email.  We have also conducted many Zoom meetings, both among staff and with clients.  I trust you are satisfied with the seamless transition our technology has provided.

Sincerely,

Richard J. Volpe, CFP®, CLU®, ChFC®

Founder and President