Borrowing from Retirement Savings under CARES Act
Concerned about your financial future due to the COVID-19 Crisis? John Mills of Tax Centers of Georgia told members of the GABB about ways you can borrow from your retirement savings without penalty and other tax strategies.
As the COVID-19 virus wreaks havoc on our personal life and financial markets, Mills discussed little known strategies to help businesses and individuals negotiate current financial hardships. The Georgia Association of Business Brokers (GABB) is hosting weekly meetings to answer members’ questions during this pandemic.
A recording of the presentation is linked here.
Mr. Mills, a partner in Tax Centers of Georgia, said that the CARES Act provides an unusual opportunity to get access to your 401k or IRA investments without age restrictions or penalties.
He said many tax experts think “average” income earners could be paying as much as 37-54% in taxes in the near future. He discussed how and investor could add hundreds of thousands dollars of tax-free cash flow to retirement income without any additional savings.
Under the CARES Act, who can get money out of a 401k and/or IRA? Anyone:
- Who is diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention.
- Whose spouse is dependent (generally a qualifying child or relative who receives more than half of his or her support from you) is diagnosed with COVID-19 by such a test.
- Who experiences adverse financial consequences as a result of quarantine, furlough, layoff, or having work hours reduced due to COVID-19.
- Who is unable to work because of lack of child care due to COVID-19 and experiences adverse financial consequences as a result.
- Who owns or operates a business that has closed or had operating hours reduced due to COVID-19 and has experienced adverse financial consequences as a result.
- Who has experienced adverse financial consequences due to other COVID-19 related factors to be specified in future IRS guidance.
COVID-19 401k/IRA Plan Details
- Loans will move from 50% or $50,000 to 100% or $100,000 that you can borrow. This options ends on September 23rd. Your plans loan rates can vary from other plans. You then pay back the loan over 5 years (this can be done with payroll deduction and dramatically increase your savings above the IRS rules).
- If you qualify (based on COVID-19 rules) you can withdraw up to $100,000. You will not be subject to the IRS under 59 ½ rule requiring a 10% penalty. End date for this is 12/31.
- If taken as a distribution, taxes owed can be spread over three years or you can choose to pay the taxes lump sum at the end of three years and skip the tax now.
- This is a one-time opportunity, Mills said.
Option #1: Loan
- Take up to a $100,000 loan from your 401k plan or any other lesser amount.
- Pay back the loan through payroll deduction over 5 years or, in a lump sum at the end of five years. Be your own bank! If you can afford more than the $20,000 limit of your normal contribution, you can now deposit $40,000 per year into your 401(k) (normal contribution plus loan each year.
- Your interest rate may be PRIME (currently about 3.25%). Each plan can vary on the rate, but rates are at an all time low.
- You now have $100,000 in your hands, income tax free.
- Just because you could take a loan, doesn’t mean you should, Mills advised.
Option #2: Distribution
- Take” the full $100,000 as a distribution from your 401k or IRA
- This could be the only time in your lifetime that you can get money out of your pre-tax account while under 59 ½ without a 10% penalty.
- The tax can be spread over three years (Due April 2021, 2022 and 2023)
- Assuming a 24% tax rate, that would mean only $8,000 in tax each year. This can be paid from savings or any other non-qualified investment you may have. If pay in 4 installments (1 immediate and 3 more over 2021-23) it would mean 4 installments of only $6,000.
- How does that benefit you to pay these small taxes over 3 years?
Alternative #1: Roth Conversions
- There is no limit on the amount you can convert from IRA or 401K to Roth
- The CARES ACT however limits the amount you can draw out of your IRA or 401k without the 10% penalty ($100,000 “per person”)
- The Roth will still have the 10% penalty before age 59 ½ and even if over that age you must hold the Roth for 5 years before accessing any of the money.
- Depending on where you invest the Roth money (Stocks, Bonds, Mutual Fds etc.) you still carry all the risk as you did in the 401(k).
What else can you do with the money?
- What if we could get the money to grow tax-deferred (the $100,000) and have it come out 100% Tax-FREE (like the Roth)?
- What if you passed away prematurely and your family then received a large sum, potentially 3 times the amount of money you took out, again…100% Tax-FREE?
- What if you had a chronic illness or required a Long-Term Care stay and you could have money to help cover your stay…100% TAX-FREE?
- What if you had a short-term financial need and you could access this same money again without any 10% governmental penalty or tax BEFORE age 59 ½ ?
Can I really do that?… YES
- Borrow OR take your distribution (or any part of the maximum) and place it in a 7702 plan using life insurance vehicles. Immediate potential benefit for your family should you pass of $336,000*
- Cash then grows tax-deferred and comes out tax free for your retirement or whenever you might need it **.
- Take your tax-free income for 10, 20 years or possibly longer in retirement.
- Receive proceeds in case of a chronic illness or Long-term care need…TAX-FREE.
- Cover a college education or wedding…TAX-FREE.
To find out more, Mills invites businesses and individuals to contact him.
Linked below is Mr. Mills’ PowerPoint presentation.
Cares Act Pwpt- .John Mills (1)-1
Read MoreCOVID-19 Advice for Hospitality Businesses
Clearly, some industries are taking a bigger hit from COVID-19 than others. Any industry that requires a great deal of interaction with the public, or where people gather in large groups, are obviously having very tough times. Movie theaters and restaurants, for example, have essentially gone dark. Some restaurants are easing the bloodletting a bit by providing delivery, but in the vast majority of cases, revenue pales in comparison to what it was prior to the pandemic.
While there is no doubt that the hospitality industry is suffering right now, business owners should understand that there are concrete steps they can take now to improve their odds of surviving the pandemic. In this article, we’ll explore a few of these key ideas.
One of the areas every decision maker and business owner in the hospitality industry should be thinking about right now is staff. During a recent industry roundtable discussion, John Howe, chairman of the International Association of Business Intermediaries, pointed out that staffing problems will continue long after the pandemic has paused or is over. He believes that hospitality businesses will have a tough time getting the staff they need, especially in the short run.
His key piece of advice is to work to have a line on people for key positions. This will allow you to at least get back up and running with basic operations. While it may be a while before hospitality businesses are at “full steam,” it is critical that they are able to open up in some fashion, as this will translate into much needed revenue. Hospitality businesses looking to survive the pandemic should focus on making certain that key positions have been filled. In this way, the post-pandemic relaunch can be as smooth as possible.
Founder and President of Cornerstone Business Services, Scott Bushkie, explained that there are a lot of hospitality industry people out of work right now, and this represents a real opportunity. Now, is the perfect time to potentially upgrade staff. There are plenty of experienced and proven hospitality people looking for positions. The new people you bring may come with extra benefits such as bringing their customers, suppliers, and other relationships with them. For those in the hospitality industry who may have always wanted to upgrade their team, now is perhaps the best time in history to do so.
Employees are a foundational element of your business. Improving your staff means you’ve improved your business and boosted your odds of survival. Bringing in new team members can help you prepare for the post-pandemic business environment. It also offers up the potential for you to upgrade an important element within your business.
Copyright: Business Brokerage Press, Inc.
The post COVID-19 Advice for Hospitality Businesses appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
Pandemic Will Impact Business Valuations
The COVID-19 pandemic is going to affect the valuation of businesses, and professionals are likely to take into account a wider number of factors when determining the fair market value of a business.
That’s what two business valuation experts told the Georgia Association of Business Brokers in a conference call on Tuesday, May 26. Dan Browning is the founder and President of DB Consulting, Inc. and David H. Hern, CPA/ABV, ASA, CEPA, a financial analyst with Sofer Advisors spoke to the GABB online. View the conference online here.
“The biggest issue is uncertainty, which heightens the risk, and higher risk leads to lower value,” Browning said. People who assign values to businesses are, by their nature, trying to predict future business conditions, which is tricky anytime, but particularly now. While many businesses have suffered, some businesses “have gone gangbusters,” Browning said. The cost of capital has actually gone down for some businesses, specifically those that have been able to obtain SBA-backed assistance in the form of grants or low-interest loans.
However, some valuation clients are “taking advantage of uncertainty,” Hern said. Some clients are using this time to “do tricky estate planning, issue equity grants, possibly get values frozen below normal,” he said.
If a business valuation was triggered before the onset of the pandemic in the US, some will argue it’s a subsequent event, and should not affect the pre-crisis value. Browning said he has started including an appendix, a disclaimer, calling COVID-19 a subsequent event, which didn’t affect value as of the valuation date.
Browning shared a timeline from respected business valuation expert Jim Hitchner who tracks the impact of the virus on various markets.
Hern shared a Sofer analysis of the mobility of the U.S. Market Mobility of US Market Sofer document
Restaurants have been seriously impacted by the crisis, and many are trying to decide whether it’s worth reopening. Some, like pizza restaurants, have adapted better to a takeout model.
Restaurant broker Dominique Maddox said many of his clients are opting not to reopen and are trying to sell their assets and get out from a multi-year lease. Pizza concepts were able to keep going strong, Maddox said.
Hern cited three approaches to business valuation: Cost Approach, in which the value of the business is equal to their assets minus liabilities. The Market Approach determines the value of a business based on a multiple and a financial metric. The Income Approach sets the value at cash flow divided by risk.
The methods skew towards tangible values during a recession, and during bull economy tends to more intangible values. Hern says he’s been running a variety of scenarios taking into account whether the economic recovery may be V-shaped, U-shaped or something else. Browning predicted a W-shaped recovery, with ups and downs.
Businesses may be getting valuations that specify a range of values instead of a single value, Browning said.
“It’s important not to get too negative,” Browning said. “There is a going to be a recovery, there is going to be coming out of all of this.” The recovery may be bumpy, but it will come.
Hern is recommending that business owners prepare their businesses to be in the best shape for the future, fixing problems. You can amplify value by reducing the customer concentration, reducing debt, improving their competitive position, improving staff depth and retention, etc.
“Companies that have fixed these types of issues will sell for better value,” Hern said.
Hern said he will be looking at vendor concentration in the future when valuing a business.
“Doing business is going to be more expensive going forward,” said Browning. Businesses are going to have to buy extra cleaning supplies, extra protective gear, more training of employees.
Hern’s presentation: GABB Sofer
Dan Browning is the founder and President of DB Consulting, Inc. His credentials include:
- Master Analyst in Financial Forensics (MAFF) from the National Association of Certified Valuators and Analysts, originally awarded August 1999
- Accredited in Business Appraisal Review (ABAR) from the National Association of Certified Valuators and Analysts, originally awarded March 2010
- Georgia Association of Business Brokers (Affiliate Member)
- State Bar of Georgia (Active Member; Eminent Domain and Nonprofit Law Section Memberships)
- Editorial Board, Business Appraisal Practice (IBA Journal) 2013-2015
- University of Notre Dame, Master of Arts (Government), January 1995
- Emory University School of Law, Juris Doctor, May 1992
- Emory University, Bachelor of Arts, May 1985; Phi Beta Kappa
David H. Hern, CPA/ABV, ASA, CEPA, is a highly qualified financial analyst with Sofer Advisors.He has exceptional credentials in determining the true, comprehensive value of an organization. In addition, he has something even more rare: a proven ability to simply and clearly communicate analysis to boards of directors, legal and financial advisors, Company management (CEOs, CFOs, controllers, etc.) and private equity portfolio managers. Mr. Hern offers litigation assistance, estate and tax planning, and business enterprise valuations for various privately-held and public companies. He has been recognized for enabling organizations to determine their enterprise and equity value for a variety of situations
Education
- Georgia Institute of Technology, Scheller College of Business, Atlanta GA. Masters of Business Administration, Finance emphasis.
- Georgia Institute of Technology, Scheller College of Business, Atlanta, GA. Bachelors of Science, Management with Accounting emphasis.
Certifications
- Certified Public Accountant (CPA) — State of Georgia
- Accredited in Business Valuation (ABV)
- Accredited Senior Appraiser (ASA)
- Certified Exit Planning Advisor (CEPA)
Read More
CDC Guidelines for Opening Restaurants, BarsChildcare Centers, other
The Atlanta-based Centers for Disease Control has released a document with the agency’s initiatives, activities, and tools in support of the Whole-of- Government response to COVID-19.
The document outlines recommended procedures for restaurants and bars, healthcare facilities, schools, childcare centers and others. Here’s an excerpt:
INTERIM GUIDANCE FOR RESTAURANTS AND BARS
This guidance provides considerations for businesses in the food-service industry (e.g., restaurants and bars) on ways to maintain healthy business operations and a safe and healthy work environment for employees, while reducing the risk of COVID-19 spread for both employees and customers. Employers should follow applicable Occupational Safety and Health Administration (OSHA) and CDC guidance for businesses to plan and respond to COVID-19. All decisions about implementing these recommendations should be made in collaboration with local health officials and other State and local authorities who can help assess the current level of mitigation needed based on levels of COVID-19 community transmission and the capacities of the local public health and healthcare systems. CDC is releasing this interim guidance, laid out in a series of three steps, to inform a gradual scale up of activities towards pre-COVID-19 operating practices. The scope and nature of community mitigation suggested decreases from Step 1 to Step 3. Some amount of community mitigation is necessary across all steps until a vaccine or therapeutic drug becomes widely available.
Scaling Up Operations
In all Steps:
- Establish and maintain communication with local and State authorities to determine current mitigation levels in your community.
- Consider assigning workers at high risk for severe illness duties that minimize their contact with customers and other employees (e.g., man-aging inventory rather than working as a cashier, managing administrative needs through telework).
- Provide employees from higher transmission areas (earlier Step areas) telework and other options as feasible to eliminate travel to workplaces in lower transmission (later Step) areas and vice versa.
- Step 1: Bars remain closed and restaurant service should remain limited to drive-through, curbside take out, or delivery with strict social distancing.
- Step 2: Bars may open with limited capacity; restaurants may open dining rooms with limited seating capacity that allows for social distancing.
- Step 3: Bars may open with increased standing room occupancy that allows for social distancing; restaurants may operate while maintaining social distancing.
Safety Actions
Promote healthy hygiene practices (Steps 1-3)
- Enforce hand washing, covering coughs and sneezes, and use of a cloth face coverings by employees when near other employees and
- Ensure adequate supplies to support healthy hygiene practices for both employees and customers including soap, hand sanitizer with at least 60 percent alcohol (on every table, if supplies allow), paper towels, and tissues.
- Post signs on how to stop the spread of COVID-19 properly wash hands, promote everyday protective measures, and properly wear a face covering.
Intensify cleaning, disinfection, and ventilation (Steps 1-3)
- Clean and disinfect frequently touched surfaces (for example, door handles, work stations, cash registers) at least daily and shared objects (for example, payment terminals, tables, countertops/bars, receipt trays, condiment holders) between use. Use products that meet EPA’s criteria for use against SARS-CoV-2 and that are appropriate for the surface. Prior to wiping the surface, allow the disinfectant to sit for the necessary contact time recommended by the manufacturer. Train staff on proper cleaning procedures to ensure safe and correct application of disinfectants.
- Make available individual disinfectant wipes in bathrooms.
- Wash, rinse, and sanitize food contact surfaces, food preparation surfaces, and beverage equipment after use.
- Avoid using or sharing items such as menus, condiments, and any other food. Instead, use disposable or digital menus, single-serving condiments, and no-touch trash cans and doors.
- Use touchless payment options as much as possible, when available. Ask customers and employees to exchange cash or card payments by placing on a receipt tray or on the counter rather than by hand. Clean and disinfect any pens, counters, or hard surfaces between use or customer.
- Use disposable food service items (utensils, dishes). If disposable items are not feasible, ensure that all non-disposable food service items are handled with gloves and washed with dish soap and hot water or in a dishwasher. Employees should wash their hands after removing their gloves or after directly handling used food service items.
- Use gloves when removing garbage bags or handling and disposing of trash and wash hands afterwards.
- Avoid using food and beverage containers or utensils brought in by customers.
- Ensure that ventilation systems operate properly and increase circulation of outdoor air as much as possible such as by opening windows and doors. Do not open windows and doors if doing so poses a safety risk to employees, children, or customers.
- Take steps to ensure that all water systems and features (for example, drinking fountains, decorative fountains) are safe to use after a prolonged facility shutdown to minimize the risk of Legionnaires’ disease and other diseases associated with water.
Promote social distancing
Step 1
- Limit service to drive-through, delivery, or curb-side pick-up options only.
- Provide physical guides, such as tape on floors or sidewalks to ensure that customers remain at least six feet apart in lines or ask customers to wait in their cars or away from the establishment while waiting to pick up food. Post signs to inform customers of food pickup protocols.
- Consider installing physical barriers, such as sneeze guards and partitions at cash registers, or other food pickup areas where maintaining physical distance of six feet is difficult.
- Restrict the number of employees in shared spaces, including kitchens, break rooms, and offices to maintain at least a six-foot distance between people.
- Rotate or stagger shifts to limit the number of employees in the workplace at the same time.
Step 2
Provide drive-through, delivery, or curb-side pick-up options and prioritize outdoor seating as much as possible.
- Reduce occupancy and limit the size of parties dining in together to sizes that ensure that all customer parties remain at least six feet apart (e.g., all tables and bar stools six feet apart, marking tables/stools that are not for use) in order to protect staff and other guests.
- Provide physical guides, such as tape on floors or sidewalks and signage on walls to ensure that customers remain at least six feet apart in lines or waiting for seatings.
- Ask customers to wait in their cars or away from the establishment while waiting to be seated. If possible, use phone app technology to alert patrons when their table is ready to avoid touching and use of “buzzers.”
- Consider options for dine-in customers to order ahead of time to limit the amount of time spent in the establishment.
- Avoid offering any self-serve food or drink options, such as buffets, salad bars, and drink stations.
- Install physical barriers, such as sneeze guards and partitions at cash registers, bars, host stands, and other areas where maintaining physical distance of six feet is difficult.
- Limit the number of employees in shared spaces, including kitchens, break rooms, and offices to maintain at least a six-foot distance between people.
Step 3
- Provide drive-through, delivery, or curbside pick-up options and prioritize outdoor seating as much as possible.
- Consider reducing occupancy and limiting the size of parties dining in together to sizes that ensure that all customer parties remain at least six feet apart (e.g., all tables and bar stools six feet apart, marking tables/stools that are not for use) in order to protect staff and other guests.
- Provide physical guides, such as tape on floors or sidewalks and signage on walls, to ensure that customers remain at least six feet apart in lines or waiting for seatings.
- If possible, use phone app technology to alert patrons when their table is ready to avoid touching and use of “buzzers.”
- Consider options for dine-in customers to order ahead of time to limit the amount of time spent in the establishment.
- Avoid offering any self-serve food or drink options, such as buffets, salad bars, and drink stations.
- Install physical barriers, such as sneeze guards and partitions at cash registers, bars, host stands, and other areas where maintaining physical distance of six feet is difficult.
Train all staff (Steps 1-3)
- Train all employees in the above safety actions while maintaining social distancing and use of face coverings during training.
Monitoring and Preparing
Checking for signs and symptoms (Steps 1-3)
- Consider conducting daily health checks (e.g., temperature and symptom screening) of employees.
- If implementing health checks, conduct them safely and respectfully, and in accordance with any applicable privacy laws and regulations. Confidentiality should be respected. Employers may use examples of screening methods in CDC’s General Business FAQs as a guide.
- Encourage staff who are sick to stay at home.
Plan for when an employee becomes sick (Steps 1-3)
- Employees with symptoms of COVID-19 (fever, cough, or shortness of breath) at work should immediately be sent to their home.
- Inform those who have had close contact to a person diagnosed with COVID-19 to stay home and self- monitor for symptoms, and to follow CDC guidance if symptoms develop. If a person does not have symptoms follow appropriate CDC guidance for home isolation.
- Establish procedures for safely transporting anyone sick to their home or to a healthcare facility.
- Notify local health officials, staff, and customers (if possible) immediately of any possible case of COVID-19 while maintaining confidentiality consistent with the Americans with Disabilities Act (ADA) and other applicable federal and state privacy laws.
- Close off areas used by a sick person and do not sure them until after cleaning and disinfection. Wait 24 hours before cleaning and disinfecting. If it is not possible to wait 24 hours, wait as long as possible. Ensure safe and correct application of disinfectants and keep disinfectant products away from children.
- Advise sick staff members not to return until they have met CDC’s criteria to discontinue home isolation.
Maintain healthy operations (Steps 1-3)
- Implement flexible sick leave and other flexible policies and practices, such as telework, if
- Monitor absenteeism of employees and create a roster of trained back-up
- Designate a staff person to be responsible for responding to COVID-19 concerns. Employees should know who this person is and how to contact them.
- Create and test communication systems for employees for self-reporting and notification of exposures and closures.
- Support coping and resilience among employees.
Closing
Steps 1-3
- Check State and local health department notices about transmission in the area daily and adjust operations accordingly.
- Be prepared to consider closing for a few days if there is a case of COVID-19 in the establishment and for longer if cases increase in the local area.
Dealing with COVID-19’s Economic Impact: Planning and Communication are Key
There are many things that you should be doing to deal with the COVID-19 pandemic. At the top of the list is to be proactive. Now is the time to be thinking about how best to position your business after the economy has returned to something near normal. Now is not the time for self-pity. In fact, not preparing for the relaunch of the economy will cost you.
In David Finkel’s recent Inc. article entitled, “10 Things Every Small-Business Owner Needs to Do to Deal with the Impact of COVID-19 on Their Business,” Finkel outlines the 10 key steps business owners should take immediately. Finkel is the author of 12 business books and CEO of Maui Mastermind business coaching company.
There is no way of knowing how long the COVID-19 fueled economic downturn will last, and that means time is of the essence. Business owners, regardless of their particular sector, need to prepare as though the economy could relaunch tomorrow.
Finkel’s 10 Things:
- Take steps to protect your staff and customers from getting sick.
- Tell your customers what safety steps you’re taking.
- Educate your staff on how to stay healthy at work and at home.
- Engage in scenarios planning to deal with how markets could change.
- Enlist vendors and suppliers for help. You should ask them to negotiate payment terms.
- Take steps to plan out your cash flow.
- Open a dialogue with your management team.
- Go on the offensive and look for opportunities.
- Get your team together and brainstorm.
- Be sure your key leaders communicate in a united fashion.
There are definitely some commonalities amongst these 10 important steps. You’ll notice that communication and education are at the heart of most of these points.
There is a lot of fear and uncertainty out there. More than almost any time in modern history now is the time to communicate. All business owners should be advised to communicate with their customers, clients, suppliers, staff, and management team in a clear fashion. Effective communication based around a consistent and logical message can help to reduce fear. The fear sections of the brain are driven by our primordial ancestors’ dread of the unknown lurking in the darkness. Part of being a good leader is to reduce those fears whenever possible.
Another common thread is planning, which includes looking for new opportunities. Whenever there is chaos and fear, there are also opportunities. You should be looking for those opportunities, whether it is improving your own business practices or looking for other companies to buy.
Good communication and planning can help you navigate these choppy waters. Planning for the recovery from COVID-19 pandemic could be the difference between staying in business and going out of business.
Copyright: Business Brokerage Press, Inc.
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