February 2021 Newsletter

As a result of the COVID-19 pandemic many people are considering a move in the near future for a number of reasons including needing more space, a change in work environment, or wanting a less urban lifestyle. As demand and prices for single family homes in suburban areas are skyrocketing, most buyers need the equity in their current home to purchase a new one. This poses the problem of selling first as a condition of being able to buy. The clear-cut solution known as the “double-move” is to sell your existing home and then find temporary housing until you find a new home, although the hassle and cost of moving twice is something most people would like to avoid.

Lenders have created products known as bridge loans (which carry high interest rates and expensive origination charges) designed to be a short-term lending solution to bridge the gap between buying your new home and selling your current home . Due to the terms and regulations, bridge loans are hard to qualify for and may not be in everyone’s best interest.

There are several alternative solutions to avoid a double-move that don’t involve expensive short-term loans:

• Sell your home and stay in it: Negotiating a multi-month rent-back agreement into the sale of your current home could help you bridge a gap in housing. This would allow you to receive the proceeds from selling your home and continue to live in it after the closing, for a specified period of time, while you search for a new home.

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Capital Advantage, Inc. is pleased to announce the promotion of Jeff Giguere, CFP® to Financial Advisor. “Jeff shares our client-centric philosophy and has demonstrated his commitment to helping our clients achieve their financial goals,” said company founder John Hayman. “I enjoy the challenge of each client’s unique situation, as no two financial plans are the same. I am looking forward to continuing to develop the relationships I have with clients and helping them on their path towards financial independence,” says Jeff.

Please join us in congratulating Jeff on his promotion!

As you may recall, under the 2020 CARES Act, the IRS allowed a one-time provision to waive your required minimum distribution (RMD) in 2020. For those who had taken their RMD prior to the act initiation on March 27, 2020, you could redeposit your distribution back into your IRA before August 31, 2020 as a 60-day rollover.

If you took advantage of this rollover to ‘undo’ your RMD, you may have been surprised to receive a 2020 Form 1099-R recording this distribution as a taxable event.

How does the IRS know that the funds were deposited back into your account to offset the withdrawal? Here’s what to expect:

• You will receive two 2020 tax forms: A Form 1099-R reporting the RMD withdrawal and a Form 5498 reporting the deposit to your retirement account.
• Form 1099-R: This form usually arrives by January 31, 2021.
• Form 5498: This form will be issued later in the year (May or June 2021) after the April 15 tax filing deadline. Note: You do not need to wait for the Form 5498 to file your taxes.
• The 5498 will offset the 1099-R: The result will classify your RMD distribution as a non-taxable transaction.

ACTION REQUIRED:
Inform your tax professional if you made a 60-day rollover deposit to your IRA. Tax preparers are aware that the Form 5498 is issued after tax season.

If you have any questions about the Form 1099-R or Form 5498, or any related tax filing questions, please consult with your tax professional.