Q: I heard that the government is going to start sending monthly payments to families with children. Is this really true?

A: Yes, it is true. With the recent passage of the American Rescue Act, Congress instructed the IRS to begin sending “advanced” child tax credits every month to qualifying parents. Similar to the three stimulus payments, most families with children will begin seeing automatic direct deposits into their checkbooks.

In the past, parents had to wait until they filed their taxes to claim their child tax credits. Starting in late July, they will now get this money in advance for the six months of 2021. The other half of the child tax credit will arrive in the normal way, by claiming the benefit on their tax return. If parents prefer to receive all of their child tax credits in one fell swoop at tax time, they will be able to opt-out of these monthly payments.

The American Rescue Act’s new child tax credit for 2021 was increased by $1,000 per child, moving up from $2,000 to $3,000 per child between the ages of 6 and 17 ($250 per month.) For children under the age of 6, the tax credit was boosted by $1,600 to a new level of $3,600 per year ($300 per month.)

These new monthly payments will feel significant for many households. For example, a qualifying family with three children will begin to receive $750 to $900 per month.

These enhanced child tax credits only go to those who earn under certain income thresholds. Married couples with adjusted gross income of less than $150,000 ($75,000 for single parents) will now get these enhanced amounts. The regular, lower child tax credit amount of $2,000 per child will still go to married couples with adjusted gross income of less than $400,000 ($200,000 for single parents.) The enhanced and regular child tax credit are subject to phaseouts above these income levels.

Importantly, the new child tax credit for 2021 was also made “fully refundable.” This means qualifying parents – and over 90% of parents qualify – will now get a tax credit for the full amount, even if they don’t pay any federal income taxes. Prior to the new law, the tax credit was reduced to $1,400 per child for non-taxpayers. Ironically, those most in need received $600 less per child because they didn’t earn enough.

According to some analyses, the switch to the enhanced, and now fully refundable, child tax credit will lift around four million children above the poverty line. An estimated six million additional children will be lifted closer to the poverty line. This equates to about one in seven children in the US.

The changes to the child tax credit only apply to tax year 2021. Without new legislation, most families with children will cease receiving these monthly payments starting in January 2022. With the looming kick-off of the midterm election cycle, we’ll be hearing a lot more about this issue.

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

The obsession with Bitcoin is bonkers. But, a ten-fold return in only a year’s time has a way of grabbing attention.

Back in 2009, Bitcoin was invented by a still-unidentified person named Satoshi Nakamoto who wrote a short paper describing a new “peer-to-peer electronic cash system.” Mr. Nakamoto simply described an idea, published some basic software and registered a website. He then abruptly handed it over to his fellow enthusiasts and mysteriously stepped back into the shadows. It’s an origin story fit for a superhero.

At its heart, Bitcoin is just a secure, electronic ledger of transactions using a completely made-up and purely digital currency. There are no banks and no middlemen involved. There is simply a collective of non-owner stewards running the system.

Imagine I’m Mr. Nakamoto and I created the first 1,000 Bitcoins out of thin air. And, let’s further imagine I convince you that each of my Bitcoins is worth $0.10. With my new $100 in Bitcoin “wealth”, you kindly agree to sell me ten delicious pizzas. You then quickly turn around and convince your neighbor to accept your 1,000 Bitcoins in exchange for a $110 used bike. And, your neighbor then spends her 1,000 Bitcoins to buy a $120 painting from a local artist.

To make this transaction history official, this very first “block” of Bitcoin transactions needs to get securely recorded somewhere. After all, we need to have a record of the changing ownership of every Bitcoin in existence.

Remember, unlike carrying around traditional bills or coins or gold, Bitcoin is a purely digital thing. In the absence of something tangible to convincingly demonstrate true ownership, the entire system depends on the existence of a trusted ledger. To ensure the Bitcoin ledger’s security and legitimacy, Nakamoto’s moment of genius was arguably his creation of the “blockchain.”

Now, to permanently cement the addition of each new block of Bitcoin transactions to the official ledger – the process of “chaining” one block of transactions to the next block – Nakamoto’s system calls on millions of computers to solve a mathematical puzzle. The fastest computer to solve the puzzle is declared the winner. This winner then gets to officially add the newest block of transactions to the old ledger. The previous version of the ledger is destroyed and the brand new, official ledger is immediately distributed across the globe and is stored on an untold number of independent computers. This process is repeated every ten minutes with each new added block of transactions.

Like mining for gold, in return for their successful effort, the winner is awarded some newly-created Bitcoin. By its very design, a declining number of new Bitcoins will be awarded to the winning “miner” until exactly 21 million of them are in circulation. Supposedly, this limit will be reached in about 100 years.

In the face of newly-printed paper currencies, you can clearly see that promised scarcity is Bitcoin’s primary allure. While unlikely, perhaps Bitcoin will someday supplant the historic role of gold. But, there’s only one major problem, you cannot use Bitcoin to pay your taxes. That’s the ultimate definition of legitimacy. It seems only US dollars will truly satisfy Uncle Sam. Given this, I think I’ll stick with old-fashioned dollars and marvel at Bitcoin’s wild ride!

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

Q: Both last spring, and now again in December, I didn’t receive any “economic impact payments.” It doesn’t make any sense to me. My income in 2020 was way down compared to 2019. Do you have any idea how that could be?

A: Your confusion is completely understandable. You’re absolutely not alone! Let me explain how the stimulus payments actually work.

Congress structured those payments – the one last April/May and the most recent one in December/January – as an “advance” on a tax credit that’s officially applied to your 2020 tax return. But, they wanted to speed up payments to people during the lockdown last spring. And, since they didn’t know what your 2020 income was going to be, Congress simply used 2019 as their “guide.”

It looks like your 2019 tax return disqualified you from receiving the “advanced payments.” The government clearly got the wrong impression about the financial hit you took in 2020. As a result, they didn’t send you those payments in “advance” of your actual 2020 tax filing.

But, don’t worry, the 2020 tax season has now arrived. If your 2020 income was lower than it was in 2019, as you’ve said, you’ll now qualify for the two tax credits of $1,200 (spring) and $600 (winter). When it’s completed, take a close look at your 2020 taxes and see if your tax credits are in there. Better late than never, right?

Q: Is age 70 ½ still an important age when it comes to my annual required minimum distribution (RMD) from my IRA? I turned age 70 ½ last spring, but I didn’t have to take any distributions because of the pandemic. Do I have to take my first RMD in 2021?

A: You are correct that required minimum distributions, known as RMDs, were suspended in 2020. But, you’ve missed a recent change related to the RMD rules.

Back in December of 2019, Congress quietly passed the SECURE Act that changed a number of things to enhance overall retirement readiness. For some reason, this bipartisan bill officially pushed back the age that you are required to start taking distributions (and, therefore, finally paying some tax) from your IRA and other tax-deferred accounts.

Since you were born after June 30, 1949, you don’t actually have to take your first distribution from your IRA until you reach age 72. For those born prior to June 30, 1949, the important milestone remained age 70 ½.

You might wonder, why did they choose such an odd cut-off date of June 30, 1949? Well, that’s officially the last day you could have been born to reach age 70 ½ during the calendar year of 2019.

Side note: There appears to be a movement afoot in Congress to further push out the RMD starting age to 75. If that comes to fruition, it’ll no doubt create some tax and financial planning strategies to consider. Frequent tax law changes and arbitrary complexity certainly breeds job security for paper-pushers, like me!

Idle hands certainly are the Devil’s workshop. If the mob of Reddit day traders who drove GameStop to stupid heights last week are any indication, so too are idle thumbs!

For the uninitiated, here’s the lowdown. Over the span of three short weeks, GameStop inexplicably vaulted from about $20 per share to nearly $500 per share. The stock’s move had nothing to do with GameStop’s actual business, of course. It was driven by individuals who gathered online and supposedly shared the common goal of inflicting pain on evil Wall Street types.

GameStop is a struggling retailer operating in the video game industry that’s increasingly going digital; a trend that’s only been accelerated by Covid. It comes as no surprise that many hedge funds decided to bet against them. In fact, GameStop ultimately became the most heavily shorted stock on Wall Street.

Now, when an investor wants to bet against a stock, they find some shares to temporarily borrow and then immediately sell them into the market. Their plan is to return the borrowed shares by repurchasing them after the stock drops. Short sellers aim to sell high and buy low. Over the past couple years, short sellers literally borrowed every possible share of GameStop.

This massive, one-way bet caught the attention of some contrarian investors. Some wagered that GameStop might be able to pull off a turnaround. A few entertaining ones even went on YouTube to explain their rationale.

If things improved for GameStop, they dreamed of a colossal “short squeeze.” That is, they imagined a rising stock price that would literally crush the short sellers. Further, if only Gamestop investors could hold on tightly enough to their shares, the short sellers would be forced to bid higher and higher for shares to exit their terrible trade.

As the story goes, inspired by the prospects of destroying Wall Streeters, millions of idle, stuck-at-home and new investors – armed with easy-come, easy-go stimulus checks and Robinhood’s trading app – gathered on a social media platform, Reddit, to coordinate the ultimate short squeeze.

To help keep the game going, these new investors have even devised mantras to inspire others to hold tight. They speak of having “diamond hands” with the ability to ride through the volatility of the trade. They even post brokerage account screenshots showing their sometimes massive losses and add pithy reminders to their fellow gamers that you-only-live-once. I imagine it looked so fun!

Lately, though, it appears the Devil has been lurking in the shadows as these gamblers tapped away on their phones. Ironically, their end-game depended on their ability to suppress the deadly sin they most despise in others; personal greed.

Over the past few days, the mob has decided to sell out and is searching in vain for a willing sucker to buy their bloated shares. Naturally, no matter how game-like it all appeared, all that free money started to add up to some real dough. The mob does still view it as real money, right? Are you listening, Fed and Congress?