Last week the market set another all-time high before retreating on Thursday. Overall, the week was essentially flat. Jerome Powell, the chairman of the Federal Reserve Bank Board of Governors, referred to as “the Fed”, reported that they intend to keep interest rates low through 2023. At the same time, they revised growth estimates upwards, expecting the economy to expand by 6.5% this year, and inflation staying below long-term averages at 2%. Further, they expect to see unemployment fall from the current 6.2% to 4.5% by year-end, and to 3.9% by the end of 2022.
Remember that our central bank is alone in the world in having a dual mandate. They look at not just inflation but also unemployment. Their projections are calling for inflation to remain stable, and not rise above 2% until 2023, at which point unemployment would be around 3.5%.
Low interest rates help borrowers but hurt savers. The idea is that lower interest rates on bonds drives people to invest in stocks to generate returns. And recent data shows that about 40% of the stimulus payments will be invested in equities.
Other money news is that the IRS has extended the tax filing deadline to May 15th, giving us an extra month to prepare, file, and pay any taxes due. While Maryland has also extended the state deadline, not every state has done this. If you file in multiple states, be sure to check your state’s deadline.
We’ve had multiple questions this week about ways to reduce taxes, especially from self-employed folks. Remember that you have until May 15th to fund your IRA for 2020. If you’re self-employed, you can open a SEP IRA. That stands for Simplified Employee Pension, and is really just another form of IRA that allows higher contribution limits. You can contribute the lesser of 25% of your net earnings, or $57,000. That contribution is a dollar-for-dollar reduction in your taxable income.
Your action to take this week is to for everyone with a High Deductible Health Plan. If you have that, and a Health Savings Account, plan now to maximize your contributions to that account. A single individual can contribute up to $3,600 and a family can contribute up to $7,200. The money carries over from year-to-year and can help cover health care expenses in retirement.
We always have additional articles, videos and other resources on our website at covingtonalsina.com. And for the month of March, we’re donating $5 for everyone new who likes our Facebook page to The Summit School, an independent school for children with dyslexia and other learning differences, up to $500.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
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