Financial advisors need to shift quickly to meet the rapidly evolving needs of clients in a generation-defining emergency pandemic, industry experts say.
With President Donald Trump expected to sign a $2 trillion economic rescue package this week, advisors and clients have a lifeline to recalibrate financial plans. The legislation steers aid to businesses, workers and health care systems engulfed by the coronavirus pandemic.
The 880-page measure is the largest economic relief bill in U.S. history, containing a laundry list of items from economic loans to tax breaks to aid to the arts and hospitals.
Here are three general areas for advisors to focus on:
Client Access To Money
The bill provides many different options for clients who have experienced an earnings disruption. Cash payments are being mailed: $1,200 per individual, $2,400 per married couple, plus $500 per child, with phase-outs beginning at incomes of $75,000 for individuals and $150,000 for married couples.
In addition, the bill allows individuals to withdraw up to $100,000 penalty-free from their retirement accounts through the end of 2020. Restrictions on retirement plan loans have also been eased. Individuals must have experienced a major economic loss directly related to the COVID-19 pandemic to qualify.
“For someone who doesn’t have a business that’s been laid off, this is the place to get some money to keep your family in a good spot and take care of some of those obligations," said Robert S. Keebler, owner of Keebler & Associates, a tax advisory and CPA firm in Green Bay, Wisc.
In addition, the bill waives the required minimum distributions from retirement accounts for individuals who are 72 and older.
“Key provisions in this bill will help workers and their families endure this crisis," said Whit Cornman, spokesman for the American Council of Life Insurers. "The assistance includes a temporary national income replacement solution for leave from work that’s not currently paid through an employer or insured disability income protection coverage. Life insurers also supported giving workers immediate access to some of their retirement savings to help where income is interrupted because of COVID-19’s impact.”
While many Americans will have some easy access to funds going forward, some in the industry are concerned that the focus on sound retirement planning will take a back seat. Advisors should caution clients against tapping their retirement accounts unless absolutely necessary, said Paul Richman, chief government and political affairs officer with the Insured Retirement Institute.
"We wanted to provide flexibility to savers to have those options if they need them, but they’re also very limited options," he said. "It’s really intended to only ease the financial pressure for workers who have lost their jobs, or who have contracted the virus and those who must stay home to care for a loved one."
The bill contains plenty of assistance and incentives for business to stay afloat, or perhaps even grow. Most agencies and advisor firms are small businesses, Richman noted, and will qualify for the small business funds.
- $350 billion in loans for companies with 500 employees or fewer, including nonprofits, self-employed people and hotel and restaurant chains with no more than 500 workers per location.
- Government provides eight weeks of cash assistance through loans to cover payroll, rent and other expenses, much of which would be forgiven if the company retains workers.
- Also, $17 billion to help small businesses repay existing loans; $10 billion for grants up to $10,000 for small businesses to pay operating costs.
"The biggest thing that's going to take all of us out of our comfort zone is this forgivable small business loan," Keebler said. "Be very careful that you'll be able to meet the forgiveness part. The loans themselves are pretty attractive."
Taxes, taxes, taxes
Clients and agency owners who pay taxes are impacted in different ways. Businesses and individuals both have three additional months to file their taxes, with the April 15 deadline pushed back to July 15.
Businesses can also delay paying their portion of employees’ payroll taxes. But business owners better make sure those tax bills are budgeted and paid for in 2021 and/or 2022, Keebler said.
“If you abscond with that money, the IRS is going to chase you down and terrible things are going to happen – gauranteed," Keebler said during a Wednesday webinar.
Businesses also get an employee retention tax credit in the legislation for 50% of qualified wages up to $10,000, he noted.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.
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