Making wise financial decisions during the pandemic is crucial during this uncertain time. However, some people don’t know where to begin with their finances. Here are 7 tips on different ways to benefit during Covid-19:
- Consider a Roth IRA Conversion
The Roth IRA conversion is a reliable planning technique for certain taxpayers. Doing so, creates a tax-free income during retirement that provides greater flexibility than a Traditional IRA does. In the current environment where asset values may still be low, including the possibility that tax rates may increase in the future, the Roth IRA conversion is more appealing between now and the end of 2020.
- Leverage Losses to Protect Income from Taxes
2020 has been a year to remember for stock portfolios and the market downturn caused by the pandemic produced major losses not seen since 2008/2009. The rebound since the low has been equally surprising. Now is the time to review your investment portfolio to realize any additional capital gains and losses for the year. If you find yourself with net realized capital losses for the year, it is vital to know that you can only reduce your ordinary income by $3,000. The remaining capital loss would then be carried forward into the next year. Remember to coordinate your capital gain/loss harvesting strategy with your tax planning.
- Employer 401(k) Match Opportunities
Everyone that has an employer offering a 401(k) match should contribute the amount required to get a maximum match. An employer 401(k) match is like getting a 100% return on your money the first year invested. If you haven’t been contributing enough to receive the full employer match, you should check on whether there’s a ‘catch up’ opportunity before the year ends. Not fully utilizing this employer benefit is essentially passing on free money.
- Increase Roth Contribution Opportunities
If you were unable to reach your Roth IRA contribution limit for the year, it may make sense to increase your contributions to successfully take full advantage of this year’s opportunity to put away retirement savings. Keep in mind, you are paying taxes at the time of contribution to a Roth IRA and then 100% of the Roth contribution remains in the account growing tax-free for the benefit of the taxpayer.
- Evaluate Beneficiary Designations
Due to the end of ‘stretch-IRAs,’ check whether any designated beneficiaries are ‘eligible’ to be exempt from the 10-year rule. Determine if current designations align with original intent (e.g., an initial designation for a child may be outdated if the adult child no longer needs the income but another beneficiary would). Also, if you are post-divorce, be sure to review all designations and make changes where necessary to avoid any hiccups along the way.
- Revisit Risk Tolerance and Portfolio Diversification
Although the stock market’s record performance is encouraging, 2020 is serving as a reminder of the everchanging nature of markets. As the impact of COVID-19 continues to play out nationwide, investors should think twice and ensure they have ample cash on hand. Furthermore, a tax-efficient financial plan that includes a diverse portfolio will confidently entrust long-term financial goals and will remain within close reach through this extreme time of uncertainty.
- Pandemic Loan Opportunity Ending
For those greatly impacted by the pandemic who need liquidity, there’s a special opportunity expiring at the end of the year. Distributions made prior to December 31, 2020 from qualified plans provide a once-in-a-lifetime chance to borrow up to $100,000 penalty, tax, and interest-free (you do lose the upside/downside on the investments) from your 401(k)/IRA over three years. This potential liquidity lifeline should be used very cautiously to avoid setting back your retirement savings for years. For small business owners affected by COVID costs/loss of revenue, it could be a highly valuable option.
Insight Wealth Strategies, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Insight Wealth Strategies, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Insight Wealth Strategies, LLC unless a client service agreement is in place.
Insight Wealth Strategies, LLC (IWS) 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.