Answering Four Common Questions About COVID-19 and 529 Plans

Learn how virtual classes, gap years, K-12 expenses and refunds may impact your education savings.

The COVID-19 outbreak has upended normal life across the world, and higher education has been no exception. As more college students respond to the pandemic by taking a gap year (i.e., a year-long break from school) or opting for reduced course loads, you may be wondering what these and other changes could mean for your 529 plan. Fortunately, we’ve got answers.

My college student is enrolled in virtual classes this semester. What expenses are covered under my 529 plan?

Higher education expenses that would normally be covered under a 529 plan also apply to virtual classes. These expenses include tuition, books, school supplies, fees, computer equipment and peripherals. Room and board will also be covered if your student is enrolled at least half time. To explore estimated expenses for an academic year, visit the respective college or university’s cost of attendance page.

If my college student takes a gap year or enrolls in fewer classes this semester, how would it affect my education savings?

Since 529 plans do not have an expiration date, your funds will be ready when you need them. This means you can resume distributions as you normally would once your student returns to school. If your student has opted for a reduced course load, then tuition, supplies and fees will all be covered by your 529 plan. However, they will need to be enrolled at least half time for room and board to qualify under your plan. If you have any questions regarding your student’s level of enrollment (partial, half time or full time), contact their educational institution.

I have a K-12 student. Can I use my 529 plan to purchase a computer? What about tutoring services?

The K-12 provision in 529 plans applies exclusively to tuition expenses. You may use up to $10,000 each year to cover these costs. While K-12 distributions are considered a qualified expense under federal law, not every state treats K-12 distributions in the same manner. To determine how your state treats K-12 distributions, consult with a local tax professional.

I received a refund from my student’s school. What are my options?

You have several options when it comes to managing amounts refunded by the school. The first is to use the refunded amount toward other qualified education expenses that same calendar year. This will ensure that your 1099 matches the incurred expenses. The second option is to re-contribute the refunded amounts back into the 529 plan within 60 days of the day the school issued the check. This contribution will be counted as a current year contribution. Just remember to safely store documentation of the refund and re-contribution for your records.

Earnings in 529 plans are not subject to federal tax and in most cases state tax, as long as you use withdrawals for eligible education expenses. However, if you withdraw money from a 529 plan and do not use it on an eligible education expense, you generally will be subject to income tax and an additional 10% federal tax penalty on earnings. Investment products are: not deposits, not FDIC/NCUA insured, not insured by any government agency, not bank guaranteed, subject to risk and may lose value.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Your Post-CARES Act Guide

Explore the act’s impact on year-end planning.

Signed into law on March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act offered an estimated $2 trillion in fiscal stimulus to help individuals and businesses cope with the economic impact of COVID-19. But what effects could this legislation have on your year-end planning? More than you may think, starting with your retirement savings.

Deciphering the fine print

If you’re among those with required minimum distributions (RMDs), perhaps the biggest impact of the CARES Act was the waiver of RMDs for the 2020 tax year, which also pertained to inherited and beneficiary-qualified account holders. Do keep in mind, however, that while this means you do not have to take an RMD at all this year, your future RMDs could be slightly higher as a result.

The CARES Act also gives you until December 31, 2020, to withdraw up to $100,000 in what’s called coronavirus-related distributions (CRDs) if you or another qualified individual experienced a financial hardship (e.g., healthcare expenses, layoffs or furloughs) due to COVID-19.

While CRDs aren’t subject to the IRS’s mandatory 20% withholding fee and are exempt from the 10% early distribution penalty tax, it’s important to note that doesn’t waive your potential tax liability. Fortunately, you have options. For instance, you can elect to have your CRDs taxed in 2020 or ratably over a three-year period. You can also repay all (or even a portion) of your CRDs to an eligible retirement plan within the three-year limit and file an amended tax return to receive a refund on any taxes you already paid. And if you’re worried about exceeding your plans’ annual contributions limits, there’s more good news: These re-contributions, which are considered a tax-free rollover, won’t count against you.

Heeding caveats

When it comes to the CARES Act’s impact on your retirement planning, there are crucial caveats to keep in mind. If you had already withdrawn your 2020 RMD prior to the legislation going into effect, for instance, you cannot now repay your plan. Additionally, if you think you’ll end up in a lower tax bracket for 2020, you may still want to withdraw your distributions. You may also want to consider converting your assets from a traditional IRA to a Roth IRA – since you don’t have to satisfy the RMD requirement that normally accompanies these conversions.

All things considered, you may be unsure if now’s the right time to convert your assets to a Roth IRA. While you’ll certainly want to discuss the matter with your advisor and tax professional, you might conclude that the answer is a resounding yes. That’s because converting when your retirement account values are low helps diminish your potential tax impact. Another worthy consideration? You’ll have to pay income tax on whatever amount you convert – and income tax rates are set to increase after December 31, 2025, when the Tax Cuts and Jobs Act expires.

Prioritizing philanthropy

True to its acronym, the CARES Act also included temporary provisions to promote charitable giving and provide additional gifting opportunities. If you itemize your charitable cash contributions, for example, the act allows you to deduct up to 100% of your adjusted gross income (AGI), instead of the usual 60%. Even if you don’t itemize, the CARES Act still works in your favor with an above-the-line deduction for cash contributions up to $300. So no matter how you go about it, prioritizing philanthropy under the CARES Act is sure to be a win/win.

Next steps

As you prepare for year-end and the upcoming tax year:
•Speak with your advisor to determine whether to skip or withdraw this year’s RMDs.
•If you need to take a distribution from a qualified plan, your advisor can help you determine the best options.
•Consider if now’s the best time to convert from a traditional to a Roth IRA.
•Maximize your impact by reviewing your charitable giving plans under the CARES Act.

Sources: proconnect.intuit.com; forbes.com; investornews.vanguard; pillsburylaw.com; washingtonpost.com; aarp.org; tannerycompany.com; vanwiefinancial.com; ibmadison.com

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as financial advisors of Raymond James, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Double Marinated Prawns Carpaccio

Carpaccio (Raw fish) brings us back to ancestral traditions that have now been made popular with growing popularity of sushi. Behind such an elementary (apparently) dish are hidden techniques, skills and different stories, which have developed over the centuries. We take precautions, to ensure the safety of this dish. Here we share with you the secrets behind a Prawns Carpaccio, with his extremely delicate double marinade, that gives you an explosion of sea flavors.

Ingredients

8 jumbo shrimp (prawns) (If you buy fresh jumpo shrimp, make sure you freeze them for at least 24 hours before you expect to cook with them, then defrost them and store in the refrigerator so that you begin with thawed shrimp)

1 lemon

1 orange

4 slices of Rye bread

2 raspberries

6 mint leaves

Extra virgin olive oil

Mediterranean Sea Salt

Ground Black Pepper

Directions

On a cutting board, clean the prawns as follows: remove the outer shell on the tail by using your hands and make an incision at the back of the prawn with a knife to eliminate the black gut. Set aside the prawns heads. Once the prawns are cleaned, put them in a bowl.

Now proceed with the marinade of the prawns. Add a drizzle of EVO oil, a pinch of salt, a pinch of pepper and the zest of a lemon and an orange. Mix by hand, or gently with a spoon.

By using a round teacup, obtain four round slices (molds) of rye bread and toast them in the oven for 5 minutes at 350 °F.

Now take the bowl with the heads of the prawns and squeeze them by hand to obtain the juice and emulsify with a drizzle of EVO oil (stir it with a fork).

On a cutting board, coarsely chop the marinated prawns into cubes.

Serve by laying a slice of toasted rye bread on the bottom of a plate, then lay a dose of prawns (about a full tablespoon) on it and drizzle with the emulsion sauce. Garnish the top by adding half of a raspberry and the chopped mint leaves, then serve.

This dish pair perfectly with a Vermentino white wine.

Buon Appetito!

Recipe from La Cucina Sabina: https://www.lacucinasabina.com/recipe/double-marinated-prawns-carpaccio/

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

From the Desk of Dale Crossley and Evan Shear

Introducing Voyage – CrossleyShear Wealth Management’s Quantitative Investment Process

We hope that you and your loved ones are staying well during these trying times. While the past few months have presented unprecedented challenges for all of us, one positive has been the market’s bounce back from the lows of March and April.  Despite this, we understand that the 24/7 news cycle and uneasiness that surrounds us these days can be stressful.  We also understand it’s during times like these you need us most. 

As we’ve stressed over the past few months, emotional investment decisions are notorious for yielding poor results for individual investors. Through this period of instability, we’ve relied more than ever on our time-tested and methodical investment process to successfully guide our clients through these extremely turbulent times – a time when fear and emotion could easily drive less disciplined decisions. As you know, our planning process is much more sophisticated than a traditional comprehensive financial planning approach.  It’s founded on a customized long-term strategy for all our clients, driven by time-tested research, a rich understanding of the markets and a proprietary algorithm that serves as the cornerstone of our process and drives emotion-free decision making.  The process has enabled us to mitigate losses and pursue long-term investment opportunities despite the market instability. 

For some time, we have explored formalizing our planning approach to demonstrate its uniqueness and the critical role it plays in delivering success to you as clients and extended members of the CrossleyShear family.  We’re excited to announce and unveil Voyage – the new identity of our comprehensive investment process. Voyage is intended to reinforce our commitment to you and remaining by your side through both the good and challenging times, leading the way by taking emotion out of investing, basing decisions on a sound financial strategy and most importantly, helping you achieve your financial dreams of today and tomorrow.

We invite you to read more about the Voyage process by clicking here.  

In the coming weeks, we’ll be formally introducing Voyage but we wanted to give you -  the main beneficiary of its performance and benefits –  an exclusive preview. If you have any questions about Voyage or would like discuss your financial plan, please don’t hesitate to reach out. As always, please feel free to refer us to any family or friends that we can help through these challenging times.   

Take care and stay well. 

Dale and Evan

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Sustainability’s Imprint on the Business World

As investors and consumers seek sustainability, companies transform their approach to solving some of the world’s biggest challenges.

Big-box stores bumping up wages. Plastic straws and mini shampoo bottles going the way of the dodo. Shoes and shirts fashioned from recycled bottles. Welcome to the new normal, where sustainability is increasingly woven into your everyday life.

Behind the small changes you see is a big shift in how companies are tackling environmental, social and governance (ESG) issues – everything from working conditions and energy efficiency to data security and business ethics – as money managers factor sustainability into investing.

“Investors want business leaders to focus on ESG … [it] isn’t just a nice-to-have anymore,” Oxford University professor and sustainability scholar Robert Eccles told Harvard Business Review. “It’s something shareholders will demand, because they believe it’s going to drive everything else they care about: growth, market share, profitability.”

Demand is the right word. This year some of the world’s largest asset managers have called sustainability the “new standard” for investing. Governments and consumers are getting on board as well. For example, the European Union now requires that corporations disclose how they manage social and environmental challenges. And at supermarkets and stores in the U.S., sustainable products have accounted for 50% of the growth in packaged goods.

So, how are corporations shaping the future? Raymond James Equity Research analysts across industries offered their insights into how an increased focus on ESG issues is driving change.

Data as the common thread

One common theme that spans from food producers to big-box retailers is the innovation fueled by data accessibility and transparency. This empowers farmers to reduce food loss and waste, enables retailers to use RFID chips to help recycle and resell clothing, and helps airlines optimize efficiency and reduce their carbon footprint. Companies are also gaining more transparency into their supply chains as they seek to measure – and mitigate – ESG risks and avoid any link to issues such as forced labor, unregulated deforestation and other practices with negative social and environmental impacts.

While big data represents opportunity, it’s also a big challenge: What ESG metrics should industries report on? Which ones are so closely tied to company performance that they can’t be ignored? After all, hazardous waste disposal may pose a significant ESG risk for a chemicals company, but not a professional services firm.

To answer those questions, the Sustainability Accounting Standards Board in 2018 published voluntary guidelines mapping material ESG issues to 11 sectors. This recent shift to pinpoint ESG factors that could hamper growth or increase costs for a particular industry is a crucial one, experts say, because it promises more relevant information and greater insight into the risks and opportunities companies are facing.

Powered by clean tech

Another sustainability theme is the adoption of renewable energy across industries. This is happening as costs for wind and solar have plummeted and technologies improve. Examples include data centers pledging to go “carbon negative” with wind and solar, and “green” buildings becoming mainstream.

We are still awaiting breakthroughs in clean battery technology that would allow us to power everything from air conditioners to airplanes when the wind doesn’t blow and the sun doesn’t shine. But even electric aviation, an idea that once seemed out of reach, is closer than you might think. Eviation’s electric prototype plane, unveiled in 2019 with an 8,200-pound battery and a range of 650 miles, is proof of that.

A shift toward “enduring value”

As companies embrace sustainability, many investors have stopped viewing it as a niche strategy.

Strikingly, 26% of all U.S. professionally managed assets, nearly $12 trillion, are already classified as sustainable, and that number is rising. ESG-aligned mutual funds and ETFs available to U.S. investors raked in $20.6 billion of total new assets in 2019, data provider Morningstar reported, four times the $5.5 billion captured in 2018. Worldwide, these assets more than doubled from 2012 to 2018, surpassing $30 trillion.

These are the kind of eye-popping numbers behind a global movement. Though barriers related to ESG information and measurement persist, the desire to focus on the long term seems here to stay.

As a 2020 report from consulting firm KPMG plainly states, “Sustainable investing is about creating businesses of enduring value” – something most anyone can appreciate.

Learn more about how industries are making future-minded progress at RaymondJames.com/PoweringForward.

Sources: Raymond James Equity Research, EU's Non-Financial Reporting Directive of 2018; NYU Stern’s Center for Sustainable Business; Harvard Business Review; Morningstar; Lazard’s 2018 Levelized Cost of Energy report

Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Sustainable investing considers qualitative environmental, social and corporate governance, also known as ESG criteria, which may be subjective in nature. As with any investment, there is no guarantee that sustainable investing products or strategies will produce positive returns. Investors should consult their investment professional prior to making an investment decision.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.