We hope that you are safe and sound as the Covid-19 crisis continues. At a time like this we are particularly grateful for so many folks to include our medical professionals, public servants like law enforcement and other first responders, and private sector employees running grocery stores and other essential functions we all need.
Some key things we wanted to communicate to you:
- On Monday, March 30th, Governor Larry Hogan expanded his shelter-in-place directives. Harford Financial Group is considered an essential business. Over last several weeks, we have moved our meetings to remote meetings with clients, followed social distancing, and other prudent and mandated practices. Governor Hogan’s new directive is to limit personnel in essential businesses to a minimum. As a result, we are maintaining a skeleton crew at HFG. Most of our employees and representatives will continue to work remotely and proudly serve you. Part of our business planning has been continuity planning in major events like this. Our team has the capability to work remotely. We appreciate your patience and understanding as we transition into new ways of serving and providing value.
- We did three webinars last week on the financial effects of Covid-19. The main messages we conveyed is that this is in the early stages and very difficult to determine long-term effects financially from the pandemic. As we have communicated in previous emails, the shape of the recovery will be largely dependent on the ability to contain the virus, reduce cases, and find medical solutions like vaccines to combat. In the best case, we will have either V or U-shaped recovery. Hopefully, we do not have W or L shaped recoveries which are more protracted. A major difference between this time and 2008 is that presently the American Consumer and Financial Institutions like banks are in far better shape going into this then they were going into recession of 2008. We will continue to do more webinars going forward and looking at transitioning to them on demand.
- Finally, the CARES ACT was passed in Congress last week. We have included a memo from FEG that explains how the stimulus is hoping to limit the economic challenges. Some things that we want you to be aware:
- Required Minimum Distributions (RMDs) for 2020 have been suspended. Therefore, if a person was supposed to take an RMD in 2020, it is no longer mandatory and there is no 50% penalty for not taking it like in previous years.
- For folks that are less than 59 ½, the 10% penalty has been waived for taking distributions from an IRA. One must understand that the distributions may still be subject to taxation. The CARES ACT allows the payment of the taxation over 3 years or gives the person the option to pay it back over 3 years. The payment of the taxation along with the pay back of 3 years also applies to retirement plans like 401k.
- For qualified plans like 401k, previously folks could take a loan up to 100% of $10,000 or 50% up to $50,000. They have now raised one can borrow up to 100% of $100,000 of the vested balance.
- Hardship withdrawals on most 401k plans have been modified but be careful. Most 401k plans permit hardship withdrawals of participants vested account balances for immediate and heavy financial needs. Unfortunately, that regular rule does not directly apply to loss of earnings due to coronavirus. The hardship withdrawals are normally subject to premature distribution for participants under 59 ½. Under the new legislation the 10% tax on early withdrawals of up to $100,000 will be waived for certain circumstances for participants or spouses diagnosed with Covid-19, suffered losses due to being quarantined, furloughed, laid off, having working hours reduced, or unable to work due to lack of child care.