Strategies if you feel stressed or anxious about money

We define our lives by the decisions we make every day. Whether it is an unexpected or unwanted election result or life transitions like death, divorce, or job loss, how we deal with these crises will define who we are (and who we become). It is tempting to wallow in self-pity, obsessing about worst case scenarios, engaging in bitterness and blame, or spending to forget, but these will only hurt and control your life. These behaviors will not provide lasting satisfying experiences or happiness within yourself. I encourage you to take the time, this year-end, to examine how you handle uncertain or stressful times and what actions you can take that will create positive experiences that will make you stronger, more resilient, and empowered.

Think about the good, the bad, and the ugly and decide what you want to keep or change in your financial life. Below are some thoughts on financial strategies to consider.

•  Build up an emergency reserve. We typically recommend that two-income families (with kids) maintain a reserve equal to six months of living expenses and nine months for one-income families. Couples without kids can keep their reserves at 4 months of living expenses and single earners need at least 6 months. During stressful times you may want to increase these amounts if you become concerned about the future. Let us know and we can help you define and create your reserve.

•  Pay down debt. These days unnecessary debt is very expensive, so consider paying down any unnecessary debts, such as credit cards, car loans or home equity lines of credit (anything with an interest higher than 4% should be paid – anything below should be aligned with your financial goals)

Review your cash flow (or budget) each month to keep you financially connected.

•  For those who spend during stressful times … I encourage you to engage in “Stress saving” as opposed to “Doom spending”. The savings will add to your safety net and make you feel more stable and secure whereas an increasing credit card balance adds stress and uncertainty.  By focusing on strengthening your savings you’ll become more resilient in the face of uncertainty.

Focus on gratitude and the things that make you smile. If you’re feeling unhappy with the world right now, focus on what you’re grateful for. The evidence is clear that being grateful and smiling each day can help improve sleep, lower stress and enhance relationships. Practicing gratitude can be a powerful antidote to the negativity we may feel around us, especially when the things worrying us are beyond our control. Find time to acknowledge each day the good things in your life.

If you’re feeling anxious and stressed, anchor yourself to what you can control and give yourself permission to release what lies beyond your sphere of influence. Remember, as Seneca The Younger wisely observed, “We suffer more in imagination than in reality.”

If we’re honest with ourselves, most of what we fear never comes to pass. Or if it does, it often brings unforeseen opportunities for growth or positive avenues for change. So, during this upcoming holiday season, if you’re feeling fearful or have a sense of doom and uncertainty, focus instead on strengthening your financial foundation, practicing gratitude, and managing what you can control. In time, you’ll feel more confident and better equipped to face whatever the new year brings our way.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

A Brief Update on Mortgages

There is no crystal ball on what will happen with mortgage rates in the future. This quarter, I’ve been asked, several times, for my thoughts on future mortgage rates. According to Government-sponsored enterprises forecasts, the mortgage rates this year (30-year mortgages) will remain over 6% and possibly drop to at most 5.60% by end of 2025. The commercial bankers (MBA) forecast are a bit higher at  6.60% this year and 6.4% by end of next year. Most recently, both Fannie Mae and MBA stated that they expect mortgage rates to remain above 6% in 2026 though keep in mind that without knowing inflation rates, growth rates, and employment rates these predictions are not reliable.

The question that usually follows has different answers for different people – Should I hold out for lower rates before a refinance or house purchase? If you want an answer for your situation then always have us run the numbers regardless of whether you are considering refinancing, buying a new home, or paying off your mortgage. In general, keep in mind that expected changes in mortgage rates this coming year are NOT significant and should not play a big role in your home purchase decision.  On the other hand, it is significant to consider the cost of your mortgage over the next five years and the impact the mortgage will have on your cash flow.

Of course, the most common question is whether mortgage rates will ever go down to 3% again. Mortgage rates have seldom been at 3% or lower. This low rate only occurs in extreme times, (such as during the peak of the COVID-19 pandemic). We don’t know if rates will drop significantly in the next years BUT we do know that economic conditions need to deteriorate significantly for rates to fall that low again.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Facts versus Beliefs – Elections and Market Behavior

Perceptions, including beliefs and media noise about which political party will be better for investors, can create anxiety and regrettable investment changes.

Consumer Confidence by Political Affiliation

The purpose of your portfolio strategy is to provide growth from expected business profits while minimizing the downside, regardless of election outcome or latest media trend. Once we know the election outcome and the likely policy platform of the new House, Senate, and President, we may adjust the portfolio strategy.

In the short term, we will monitor for market opportunities stemming from market-based investor greed or fear.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

California continues to move forward with payroll Long-Term Care insurance

Long-Term Care insurance (LTCi) funded through a payroll tax is currently under serious consideration by California. We do not yet have details, but this may be similar to what Washington State instituted several years ago.

To prepare you for this possibility we will be adding a LTC insurance conversation to our fall meetings for anyone employed in California (we will look to see if other states are also considering a similar measure).

The passage of AB 567 (2019) established the Long-Term Care Insurance Task Force (Task Force) of the California Department of Insurance. This task force is developing a statewide insurance LTC services program. The Task Force has already recommended several options to the Governor and the Legislature (2022). The options in the Feasibility Report will undergo financial analysis and their findings will be included in an Actuarial Report, which, if approved by the Task Force, will be submitted to the Legislature no later than January 1, 2024. (if you want more details let us know and we’ll send you information from California Insurance Commissioner Ricardo Lara).

What does this program mean for any employee (or business owner)? A mandated LTC insurance program would be an ongoing cost to cover an insurance pool that may or may not provide a significant level of support or portability. If this follows a similar program implemented in Washington State, we recommend that most of our California employed clients consider obtaining a minimal LTC insurance policy prior to year-end (for now we don’t yet know what options California will provide to opt out so no action is needed).

How soon could the Program be implemented? The Task Force will make its final recommendations to the Legislature in the Actuarial Report, which will be submitted by January 1, 2024. At that point, legislation would be required to establish and implement a statewide program which can be dated in the future or more likely as of the day it is accepted.

How is the Program opt-out designed? We only have minimal information, but for now individuals who own eligible private insurance as of a certain date on or before the program effective date would be permitted to opt out of the program. Any new policies sold after this deadline would be ineligible for program opt out but could qualify for reduced program contributions. To be eligible to opt out, or receive reduced program contributions, the policy would have to meet certain standards (not yet outlined but expected this fall) and would be subject to periodic recertification.

How would the program be funded? A progressive payroll tax, perhaps split between employees and employers, with an income-based tax for self-employed individuals is the most commonly recommended design so far.

We will keep monitoring the progress of the Long-Term Care Task force and also work with clients to determine if a private LTC insurance policy is appropriate. This is only relevant to anyone who will continue to earn income in California.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Key Points of a Divorce that Everyone should know

It is our goal to provide each client with education and empower them to integrate finances into their lives so that they can support their wishes now and for the future. We should all know the financial impact behind our decisions before making our choices. Couples can find that finances along with shared future goals can empower and strengthen their relationship but at times, future goals are no longer aligned, and couples choose to go their separate ways.

A divorce is a legal process to address the separation of two lives in an orderly and legal manner and allow each adult to move forward in their new lives. In California, it doesn’t matter if this is a traditional marriage or a domestic partnership nor does it matter if it is with same or opposite sex partners.

Over the years I’ve attended many divorce financial planning events and, last weekend one that was particularly good, so I thought I’d share what these professionals said about the next most important step after deciding to divorce.1

My goal below is to educate everyone and is not intended only for those considering a divorce.

What needs to happen to obtain a divorce?

A divorce is granted either by an agreement generated by a judge or one generated by negotiation— or usually both. A divorce judgment is a legal document that declares that the marriage (or domestic partnership) is dissolved and typically includes an agreement on income, debt, assets, and parenting responsibilities. To receive a divorce judgment requires that a petition be filed, a declaration of disclosure, and then wait 6 months plus a day. [Keep in mind that the professionals, at this event1, were all talking about California which is a “no-fault state.” In California it doesn’t matter who serves the divorce petition but in other states the process can be significantly different.]

In the divorce process there is a great deal of paperwork particularly around finances and parenting that is easier to assemble if you have a non-adversarial approach. For finances there is a requirement to file Declarations of Disclosure (initial & final) which includes income & expenses, assets & liabilities (emphasis on all assets), and income tax returns.

How can you go about obtaining a divorce?

  • DIY – Do It Yourself divorce. This process has the fewest fees and couples retain most of the control, but it does require agreement on the process and terms. Together you must cover the legal, financial, and emotional conversations in a respectful and non-threatening manner.
    We recommend that, at minimum, you have an attorney review your agreement before submitting it to the court. The costs will be limited to a filing fee and payment for the attorney and any other professional(s).
  • Traditional divorce, where the decision is ultimately made by a judge, takes control out of your hands. Instead, the judge will apply the law to determine your rights, responsibilities, and entitlements in what is an adversarial platform. This process is the most familiar, most expensive, and often most aggravating. The courts are swamped with cases, so this approach takes the longest to complete. The judge, moreover, doesn’t know you and will, nevertheless, pass judgments that will be binding. The law defines your rights, and the court can compel a party to adhere to the terms regardless of fairness.
  • Mediation is the polar opposite of the traditional divorce. It is a facilitated process to help the divorcing individuals come to an agreement using neutral professionals. In this process it is important to hire a mediator who knows family law and is not adversarial in nature. This private and voluntary process will require conversations and thinking outside the box so as to deliver an outcome that is acceptable to both. The intent is for an agreement that will last, take shorter time and be less expensive than traditional divorce, BUT equally binding. We find this process requires compromise and a willingness to reach a settlement. The challenges for this type of divorce are that each person MUST be able to remain civil and even friendly during mediation since both will need to compromise. This process is, therefore, not appropriate when there is a coercive, substance abusing or violent relationship. Unlike the traditional process you can’t force anyone to keep to their process or make decisions but once an agreement is signed and approved by the court then it is enforceable.
  • Collaborative process. Collaborative divorce is similar to mediation but is structured so that decisions are made together with a team of legal, financial, and mental health professionals on both sides that follow the same ‘collaborative’ approach. The goal of this process goes beyond the agreement and is particularly important for those who have children or will need to interact with each other for a period of time after the divorce (such as for co-parenting tasks that can last the life of the children). The process often results in private confidential and controlled agreements, but it can be very expensive since all the professionals concerned must be experienced and trained in the collaborative process, which is not the usual adversarial legal system. Although it can be the most expensive, the process may yield a more workable outcome. Like mediation, a collaborative divorce doesn’t work for anyone experiencing violence, coercion, or substance abuse.

Divorce is a dramatic change and is often accompanied by conflicting emotions of grief, anger, fear, and anxiety. It is therefore very difficult to make complex decisions during these emotionally intense periods. We have to acknowledge that humans are wired to perceive and respond to danger/fear with an automatic survival response which is the opposite of calm thoughtful thinking. The goal is to generate a calm and thoughtful environment. It is, therefore, particularly important to ensure that the behaviors, words, and actions be those you would find acceptable in the long-term, particularly in front of children. If children are involved, you must also follow Standard Family Law Restraining Orders.

What is AIKAPA’s Role?

We are not divorce professionals. Our role is to provide each of our clients with support regarding their finances by generating needed documents and answering specific questions. For some, this can be done by giving us permission to discuss your finances with your divorce professionals and for others it is done by answering questions posed by each client in individual or in joint conversations. When requested, we also create new financial plans for each client so that they can visualize their finances in the future. In Domestic Partnership dissolution we must also consider federal and state rules that will allow for the same outcome as is experienced for those in traditional marriages.

As a fiduciary, AIKAPA, must respond to both parties openly and completely.

We will not execute financial transactions without approval from both clients once we are aware that you’ve decided to divorce. We work to provide the necessary supporting financial materials in a balanced, sensitive, and factual manner.

Since we understand that a financial agreement in a divorce is a very personal and emotional document, we do not participate in creating the agreement with our clients. We encourage our clients to work together and ask us questions or hire individual divorce professionals to ensure that your agreement represents your wishes today and in the future.

Once there is a joint agreement and a court divorce judgment, we are tasked to ensure that the family portfolio assets are split as indicated in the agreement/court decision.

AIKAPA is here to support the family in each financial decision, but the choices and preferred actions rest with the family.

1Much of the content for this article was from a presentation by Collaborative Practices California – Collaborative Divorce North Bay. If you request it, we can share notes with you or you can join one of their Saturday morning webinars on this topic.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Perspective on Inflation, Recession, Stagflation, Deflation

To date, we’ve all seen price increases (inflation) and also shrinkflation (smaller content of a product for the same price) but so far no hyperinflation. As consumers and investors, we participate in this process but seldom acknowledge the interplay. For example, when we decide to spend freely at this point in the economic cycle, we are contributing to inflation but not spending at all can contribute towards deflation.

To me, recessions are a natural cleansing mechanism for the economy. Over the course of economic expansions, companies become flush with excess. Meaning that their processes loosen, they hire too many people, they accumulate too much inventory. Recessions are a business cycle’s ‘diet plan’ for companies that need to shed excess but do so reluctantly – with negative growth. Recessions are never fun (the pain will certainly be felt more by those without adequate resources or with less certain employment), but historically they tend to be short-term interruptions between economic expansions. It is accepted that the greater long-term risk to the economy is not recession, but stagflation (slow growth, increased unemployment, and inflation) or even deflation (drop in demand for goods).

Despite headlines to the contrary the ‘tightening’ of monetary policy by the Federal Reserve is essential to economic recovery, which means raising interest rates have to be tolerated to slow down inflation and hopefully without dramatic increase in unemployment.  With that, it is “quite likely” that the unemployment rate will rise “a fair bit” from  where it is now, at 3.6%. If it rises more than a ‘fair bit,’ we could see a period of stagflation.

You’ll likely see headlines through the next months about the last time the US experienced stagflation. Briefly, in the 1970s the onset of stagflation was blamed on the US Federal Reserve’s unsustainable economic policy during the boom years of the late ‘50s and ‘60s. At the time, the Fed moved to keep unemployment low and to boost overall business demand. However, the unnaturally low unemployment during the decade triggered something called a wage-price spiral and hyperinflation. The impact of inflation on our economy will depend on the differential between the inflation rate and wage growth. This is what the Fed is trying to control as it maneuvers for a ‘soft landing’. The higher the unemployment, the greater potential for stagflation.

Stagflation may happen if a recession sets in before inflation has gone down low enough. For example, if unemployment were to go up to about 5% and consumer price index inflation was also above 5%, then that would be a kind of stagflation, though nothing like the degree experienced in the ‘70s. In the near term, we expect the labor market will more likely just cool, resulting in fewer vacancies rather than unemployment. It is likely that we will enter a recession this year and/or in 2023 but hopefully not stagflation. Much depends on how the economy and businesses react to Fed rate hikes.

Before focusing on the unknown future, we should remind ourselves that in the last 20 years, we’ve seen declining interest rates and low inflation, which in turn caused a seemingly never-ending increase in housing prices. This put extra money into our pockets and drove prices of all assets up, which in turn boosted consumer confidence, as people felt wealthier and were encouraged to spend. In addition, during the last 20-plus years every time the economy stumbled, the Fed worked to bail it out – by lowering interest rates, injecting the market with liquidity. This caused the economy and equity market to recover quickly and without much pain. The pain we were spared was stored, metaphorically speaking, in a pain jar (represented in part as increased debt, income discrepancies) awaiting the next crisis. Today, to prevent inflation turning into hyperinflation, the Fed has no choice but to raise interest rates. We expect that this process will take time and likely be cyclical since the Fed only controls a couple of components. Consumers, by their purchases, will play a role in which companies survive this market cycle. The larger goal is for the business cycle to trim inefficient businesses while avoiding hyperinflation, stagflation, and deflation.

Though price drops are considered a good thing—at least when it comes to your favorite shopping destinations – price drops across the entire economy, however, is called deflation, and that’s a whole other ballgame. Large scale deflation can be really bad news.

While inflation means your dollar doesn’t stretch as far, it also reduces the value of debt, so borrowers keep borrowing and debtors keep paying their bills and the economy continues to grow. Modest inflation is a normal part of the economic cycle—the economy typically experiences inflation of 1% to 3% per year—and a small amount is generally viewed as a sign of healthy economic growth. You might have heard that 2% is the Fed’s target inflation rate.

Inflation is also something consumers with assets/resources can protect themselves against, to some extent. Investing in equity markets, for instance, grows your earnings faster than inflation, helping you retain and grow your purchasing power. Protecting yourself against deflation is trickier because debt becomes more expensive, leading people and businesses to avoid new debt. They instead payoff increasingly pricey variable rate debts from prior purchases and avoid new purchases, decreasing growth.

During periods of deflation, the best place for people to hold money is generally in cash investments, which don’t earn much. Other types of investments, like stocks, corporate bonds, and real estate investments, become riskier when there’s deflation because businesses (even businesses with good market performance but with high debt) can face very difficult times or fail entirely.

Overall, in the USA we’ve primarily experienced inflation, not deflation.

As consumers and investors, we don’t control these market components, so what might we do? We focus on what we can control and work to feed the economy while trimming our excess spending.

This is actually a really good time to revisit your financial fundamentals. Do you still have a reasonable emergency fund? Are you spending consciously and aligned with your values and budget? This is certainly a time to re-examine any adjustable-rate debt and determine how to best lock them in. It is also a great time to examine your career and ensure you are professionally valued and not likely in any potential layoff pool. Most importantly, this is a time to get comfortable with what you value and control.

Do not let fear derail what you do. Instead prepare your finances to take advantage of whatever situation presents itself.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Family Loans

Lending money to family is often intended to be a gift of love and to provide assistance, but it is also rife with perils, for both the lender and the borrower.  It goes without saying that lending money should only be considered when permitted by your financial plan. In other words, don’t give money away at the expense of your future cash flow.

If all goes well, the loan will be repaid in a timely manner and will be a win-win for the lender and the borrower. In our experience, this is not usually the case.

In fact, most family loans are forgiven and often turn into gifts. In some cases, family discord and financial stress derail the family relationship when the borrower is unable to repay, and the lender needs the funds for their financial well-being. At other times the loan repayment is not the issue, but other squabbles (like unequal lending to family members) arise which can cause defaults and family resentments.

Lending money to a family member in exchange for a promissory note must follow IRS rules. The IRS requirements are clear, the loan must charge a minimum interest rate, must document transactions, and require repayments. If it is instead a gift (no repayment expected), then it must be stated as such and recorded for gift tax purposes (and may require filing an IRS Gift Tax Form).

The recent highly publicized case of Bank of America independent director David Yost’s daughter’s divorce is an appropriate example. Yost appears to have made $8M in loans to the couple years earlier and on divorce demanded repayment from his soon to be ex-son-in-law. The ex- claimed they were not loans but gifts that Yost made to appear as loans to evade taxes. This landed both families in court with suits on both sides and the IRS watching from the sideline.

It is common for highly affluent families to make private loans with assets they do not need in their retirement. It is particularly beneficial when loans are used to purchase assets for the next generation without tax liability and to simultaneously reduce the size of the lender’s estate while avoiding future estate taxes (currently, this estate tax reduction strategy is relevant for families with estates greater than $12M).

My concern over family loans arise when the financial plan doesn’t comfortably cover the loan and yet the lender feels emotionally inclined to make the loan despite the projected shortfall in future cash flow. I find that lenders who are family members do not recognize that despite best intentions the possibility exists that the money will not be repaid, and money not market invested is missing out on gain that will be needed later in retirement. In addition, most are not aware that without proper documentation the IRS can label this transaction as a tax avoidance technique.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Manipulative Investment Products:  Politics and Emotion

The investment world frequently capitalizes on emotions by creating products (funds) that cater to the latest fads or emotionally charged topic. A recent trend has been to create funds that filter companies based on political views.

A recently concocted fund demonstrates this trend precisely. The adviser ostensibly boycotts certain companies in the S&P 500 perceived to be too liberal and calls it a new fund. The fund’s very name is designed to excite and exploit political passions, irrespective of what the client might need in their portfolio. In addition, defining one company as “left-leaning” or another as being “more Conservative” is not only arbitrary in practice, but also contrary to the entire idea of diversification, and the “rational investor.” The marketing pitch captures people who believe that filtering using personal conservative ideals, beliefs, and values will yield needed market returns while investing in companies they think fit with their political beliefs. This is not likely to have the expected outcome since markets seldom behave how we want or expect them. They are encouraged to invest dollars without regard to capital market behavior or diversification. Amazingly they do claim to be ‘diversified’ and not to compromise performance without much history.

Whether “pro Right” or “pro Left”, I consider this trend more insidious than other marketing techniques because it encourages investors to use politics and emotions to select investments for a retirement portfolio. Retirement portfolio allocation shouldn’t be derailed by fads or emotions but capture gains when others react emotionally.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Market Volatility – Panic has a Price

Market volatility is part of the deal when investing for the long-term. Currently, some of the volatility is due to inflation and the invasion of Ukraine but most of the volatility is from fear of the unknown (by market participants). We’ve had many periods that generated panic and each time an emotional reaction or seeking ‘safety’ had a price.

Since 1960, the markets have dropped more than 30% during seven crises.

Instead of seeking ‘safety’ during a crisis, we encourage you to let us do what we do best and make the most of these crises and instead focus on things that you directly control.  The best way to handle market volatility is to have a plan in place and let it be executed without ‘fear’.

So, what should you do during periods of volatility?

  1. Take care of your health by not over focusing on media hype – crises are a bonanza for media outlets. For example, CNN searches were up from 89% to 193% during March of 2020. ‘Googling’ trending topics only makes us more anxious. Online searches will not guide you to how your portfolio and your finances should be managed to get you to your goals.
  2. Do not check your portfolio every day but do evaluate your anxiety level – if you find that you are overly anxious then we need to re-examine your asset allocation once the market recovers. Keep in mind that unless you depend on the portfolio for cash support, what happens in the market today is not relevant.
  3. Monitor your cash flow – ensure that you have the cash flow you need and that you have the necessary emergency fund.
  4. If you have a long-term horizon (meaning that you are not planning to draw from your portfolio over the next 3 years) then view the volatility as dips that we will use to reallocate your portfolio.
  5. If you depend on the portfolio for ongoing cash flow and we developed a distribution plan for you then you have a withdrawal plan for the next 3-5 years regardless of the market dip. Stay within planned spending.

I don’t deny that there is good reason to be anxious about the war in Ukraine and the impact it will have on our lives and the economy. Even so, this is not the time to decide that you want to make your portfolio ‘safer’. ‘Safer’ often means going to cash or bonds but the time to move to cash is when markets are doing well not during a crisis. During a crisis the ideal action is to use cash to buy positions that will benefit your portfolio in the long-term even if they underperform in the short-term.

The graph below illustrates how a hypothetical “fearful” investor, who chose safety during market downturns of 30%, missed gains time and time again during market recoveries. This investor traded long-term results for short-term comfort likely because the constant drumbeat of negative news made it difficult to stay true to the investment plan.

But how about market timing? Research shows that market timing strategies do not work well for individual investors. Dalbar’s Quantitative Analysis of Investor Behavior measured the effects of individual investors moving into and out of mutual funds. They found that the average individual investor returns are less—in many cases, much less—than market indices return held through the crisis.

But how about, “it is different this time”? Of course, each crisis is different BUT the US has experienced 26 bear markets since 1929 and the markets recovered all 26 times though some took a long period of time to recover. The key to market recovery is that businesses must continue to make profits.
If you find that you are overly anxious about your portfolio, then record this in your Aikapa folder and let us seriously address your portfolio allocation and the tradeoff to your long-term goals once the market has recovered.

If you find you have unexpected/unplanned cash flow needs from your portfolio, then let’s talk about it and find ways to provide what you need today minimizing damage to your long-term plans.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

The American Rescue Plan of 2021: Highlights

The details of the American Rescue Plan 2021 are still being processed BUT we know
that it doesn’t include RMD relief for 2021 nor increased minimum wage. It does
provide both 2020 and 2021 tax filing items. Below, I’ve outlined those that I found
most significant so far.

  1. “Stimulus Checks” For individuals: $1,400 per eligible individual for
    all dependents with stricter phaseout that start at $75K for individuals and at
    $150K for those married filing jointly (MFJ). File early if your 2019 tax filing
    does not qualify you for this stimulus.
  2. Expansion of Child Tax Credit: It provides an increased amount of child
    tax credit for those under $150K (MFJ) AND an increase to $400K (MFJ) in
    earnings for the base credits. In 2021 there should be an opportunity to
    receive more child tax credits for up to $400K.
  3. Extension of Unemployment Compensation: An additional weekly
    $300 Unemployment benefit was added, and coverage was extended until
    September 6th, 2021.
  4. 2020 Tax-free Unemployment Insurance income: For those receiving
    Unemployment Insurance in 2020, up to $10,200 of those earnings will be
    tax-free.
  5. Increased Premium Credit Assistance: Healthcare premium assistance
    extended from 2020 through 2021 with higher earnings.
  6. Tax Credit for Employers to cover COBRA for 3 months: Any
    employee involuntarily laid off will have free full COBRA coverage for 3
    months by the employer who will receive credits for paying their COBRA.
  7. Tax-free student loan forgiveness for the future – if a student loan is
    forgiven by 2025, it will be tax-free.

It will take time to distill what will be relevant for 2021 taxes particularly since we are
all still trying to understand and work through CARES 2020 tax rules and implications
for 2020. For now, it makes sense to slow down the 2020 tax filing and
ensure that your CPA is aware of all of the CARES 2020 and TARP 2021
rules before filing – luckily, we all now have until May 17th.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com