Financial Education: Exploring the Opportunities from COVID-19 Stimulus Legislation

June 10, 2020 - Crypto News, Expert Commentary, Money Bits

Covid Stimulus

Disclaimer: VBit Technologies and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Understanding how finance works is half the journey to financial freedom.

And this is not a big secret you’re being let in on. Many ordinary people are simply winging it, preoccupied most of the time with other trivial things.

It is hardly surprising that millions of people in North America, even with college education yet just about make ends meet. As jobs change because of technology many people find themselves redundant. Moreover, with inflation steadily rising over the years, and wage growth slow, the middle class is continually shrinking in the USA.

It is not uncommon to find individuals making north of $50,000 a year, yet still saddled with debt. Building wealth is incredibly difficult through regular employment.

Therefore, as income inequality continues to grow, the country is fast becoming divided into two classes: the rich, and the rest.

If you are a person in this middle-income bracket, the obvious question is how to rise to the top. With high paying jobs requiring tremendous expertise or education, the only way to rise is to do it the old school way. Find a business, invest, and build for steady income.

This may sound cliché but if you don’t find ways to earn while you sleep, you may have to work till you die.

Let your money work for you. 

Understanding How to Invest

Knowledge is power.

Before investing in anything, how about you invest in yourself? There is a lot to learn about money and investing that isn’t taught in school. Take time to understand the investment landscape and how to cultivate a savings culture.

That is how to get ahead in a capitalistic society. What are the prevailing trends? What is the most efficient way to get something done? How do you plan? What does the future hold for a particular asset class?

Building wealth needs a lot of behavioral adjustment.  That is the only way to create a saving culture, know how to invest, and get ahead in life. You could be a landscaper without a college education and get to build a great landscaping business to get ahead in life, then save and invest for the future. 

Such progress needs a basic understanding of your investment options.  Why pick an index fund or a mutual fund, for instance? What are the tax options when investing in an IRA or 401k plan? These are questions you don’t need a big-time tax lawyer to break down for you. The information is available and can guide your investments accordingly. The little guy normally is the last to get ahead because they are the last to find out what is happening.

Opportunities are there to be taken like interceptions. For instance, let’s look at the Coronavirus CARES Act stimulus legislation. Most people will know of the $1,000 check but there is much more interesting stuff therein.

Exploring the CARES ACT

The Coronavirus Aid, Relief, and Economic Security Act (H.R. 748), also known as the CARES Act, is a piece of legislation the US congress passed to increase liquidity in the American economy at the height of the Coronavirus Pandemic. There are two versions, CARES Act 1 &2. 

Most Americans never get to know what such legislation contains. The stimulus check was good enough for most people. Art Smith, a 20 year veteran in financial planning advice breaks down a few interesting provisions of the CARES Act.

If you review the CARES Act, which is accessible with a simple Google search, there is a lot to learn. 

If you took a distribution from your retirement plan, be it a 401k, an Individual Retirement Account (IRA), or any other type, you will not get slapped with the 10 percent penalty provided you are under 59.5 years old.

The other caveat is that you could be taxed as income on the distribution but you could spread that income over a three year period. That’s pretty powerful because not many people have disposable cash they can readily invest in.

These seemingly mundane provisions open up some portion of your savings for investment with the cap at $100,000. Previously, taking a distribution could come with a tax bite of up to 30 percent. It opens up liquidity for people having hardships like losing employment or having low savings. Alternatively, it can provide money for you to invest, which is a great opportunity.

Obviously, it may not be the most prudent thing to take money out of your retirement account. However, if you have a large retirement account, say $200,000+, taking 5% or so for investment is a viable risk. Such are the opportunities available with a little more education and understanding of your finances.

Similarly, the CARES Act does not obligate the plan sponsor of the 401k, say Fidelity as the plan sponsor, to withhold 20 percent for federal taxes and early withdrawal penalty. Normally, the plan sponsor is obligated to withhold the 20 percent and the 10 percent early withdrawal penalty if you are under 59 and a half.

Being able to take up to 100,000 from your 401K is great for people whose liquidity has been affected by the pandemic. The cut off for these provisions is December 31st, 2020, but the situation is fluid.

Borrowing from the Retirement Plan

Typically in a 401k, you can borrow up to 50 percent of the account value. Assuming you have $100,000 market value in your 401k in mutual funds and such, most plan sponsors will allow you up to $ 50,000 in loans, and depending on how you use it, say home purchase, you can extend the repayment term up to 120 months. A general use loan can have a 60 month period in repayment terms. That is another strategy to generate liquidity.

It is better to do that when the market is high. However, take the loan if you have a great deal of job security because losing your job can incur tremendous risk. You don’t have to borrow 40-50 percent against your 401k because of the heightened risk.

The interest rate is pegged to the primary, which is pretty low right now. Again, the interest gets paid back to you; you are essentially paying yourself back with interest. It is all about understanding your positions and the risks involved.

The US government is making it easier for businesses to access money. Be it low interest rates, forgivable loans, or several other measures, these are available to everyone. You should take advantage of these opportunities to the fullest. Read the CARES Act to learn more about opportunities.

If you simply want to know your social security benefit, log in to socialsecurity.gov to find out what your benefit is.  As much as the goal of investments is not to worry about your social security benefits, always be on top of your financial situation. Variables like rising retirement age, solvency issues with the entire program, or taxes can change your benefits eligibility.

A Bitcoin 401k

Did you know that there is a Bitcoin 401k plan out in the market?

Crypto payroll company Bitwage recently unveiled a flagship Bitcoin 401k plan. Bitwage is marketing this account to businesses as a way to beat the 75 percent payroll requirement in the federal Paycheck Protection Program (PPP). 

PPP has been a lifeline for businesses across the United States during this pandemic. The US government has placed an employee retention caveat on small businesses to use at least 75 percent of funds received on payroll expenses to be eligible for 100 percent forgiveness of their loans. Businesses can devote some of the loans into the Bitwage Bitcoin 401(k) Plan to hit the payroll requirements.

Bitwage has partnered with crypto exchange Gemini, the custodian service Kingdom Trust, as well as the established pension provider, Leading Retirement Solutions, who keep records for the 401(k) plan with the Department of Labor and the Internal Revenue Service (IRS).

It will be interesting to see how Bitcoin 401k adoption goes. 401k plans are diverse and employees will want to check as many boxes as possible while integrating Bitcoin into their plans. This will represent yet another mainstream frontier for Bitcoin. 

For now, many companies don’t offer a Bitcoin 401k. An IRA is the other option for those seeking to invest in Bitcoin for retirement purposes. Bitcoin can provide an excellent hedge against inflation. Gold has held the mantle of a stable asset for some time now but Bitcoin is divisible and digital. The case for a ‘digital gold’ is fermenting with time.

The Move towards Digital Money

Ever since Richard Nixon took the USA off the gold standard, the Federal Reserve has had a free hand in printing money. The more countries continue to debase their currencies, the less stable they become. Trust in the US dollar is gradually eroding.

 When Jerome Powell stated that the Fed is willing to provide ‘unlimited lending’ to banks, it was not a statement of strength. It was an admission of how broken the system is that the Fed can basically print money infinitely without accountability to prop up the economy.

It is no coincidence that wealthy people are increasingly moving their money into assets. Whether it is the likes of Ray Dalio talking up gold, art auctions fetching record bids, or real estate, real assets are really hot. The question begs; what happens to the ordinary truck driver once driverless trucks become a thing? 

The case for digital currencies like Bitcoin has never been stronger. The likes of Elon Musk see crypto as the next big thing.  People investing in stable assets and alternative currencies like Bitcoin have more reason to believe in their investments with unlimited quantitative easing. As the supply of Bitcoin continues to contract, fiat is being printed with impunity all over the world. Bitcoin is built to take advantage of the shortcomings of fiat, and the storm clouds seem to be gathering.

This is not to guarantee the death of fiat currencies. However, at the very least, the world will use less and less cash. You can hedge on fiat by owning crypto, or mining. 

China is exploring a national digital currency to be a pioneer in this sector. Given that the USA and China are geopolitical rivals, the Fed is certain to come up with something similar. It is amazing how a prominent Wall Street CEO, Jamie Dimon was a crypto skeptic a few years ago yet JPMorgan is now active in digital currency research. 

Such an outcome would be great for Bitcoin and crypto. Mind you, the only reason governments have not legitimized crypto is that they don’t control them. However, the fact that the US government already has legislation on Bitcoin taxes shows the tacit acknowledgment that Bitcoin is here to stay. Overall, the future of money is digital.

Bitcoin Mining as an Alternative Investment

Bitcoin has come a long way from its days as a fringe utility for cryptography enthusiasts. As one of the best-performing assets of the past decade, it is difficult to argue that crypto now has a solid footing in financial markets. 

Bitcoin has been on a roll in the past few weeks, hovering around the $9,700 mark at the time of writing. As more institutional investors begin to get into action, Bitcoin has found some real value.  Even through the Coronavirus-fueled selloff, Bitcoin did not collapse, even without stimulus packages. As cash continues to be debased, investing in Bitcoin makes more sense. The ceiling for Bitcoin is extremely high and don’t be surprised if Bitcoin explodes soon. Some rosy estimates even point to a Bitcoin price of $100,000 in the next few years.

Still, a lot of people are rightfully skeptical about holding Bitcoin. The primary reason for this is the volatility of Bitcoin prices.

What’s the next best thing?

Purchasing of Bitcoin mining equipment from a reliable reseller is an excellent way to generate crypto income. With a professional host, you can earn consistently from Bitcoin mining and build wealth. Now that there is cheap money in the system, use the extra liquidity to purchase high hash rate mining gear to mine Bitcoin while concurrently reducing your tax obligations. 

VBit Technologies is the perfect partner in this operation. We have state-of-the-art data centers that utilize cheap renewable electricity in the United States. This is an excellent opportunity to make the most of the extra money you can access from the CARES Act. The potential for Bitcoin is tremendous given how prices have been consistent in the past few weeks.

Buy Bitcoin mining equipment today from VBit Technologies and build your way to financial freedom!

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