Member Insights by Todd Walter, CFP, CPA
Partner and Chief Wealth Planning Officer
What did you do the first few weekends of our COVID-19 quarantine? If you are anything like me, you cleaned house. Closets, basements, cupboards, garage. The weather is turning and now it’s time for yard work. Our houses have never looked so good. But what about your financial house?
We are seeing many of our clients use their extended time at home to get their financial house in order. And it’s a great time to do so. With markets still off their highs, the new CARES Act, and time on our hands, planning opportunities abound!
Anytime the market corrects, we should evaluate all planning strategies that focus on “buy low, sell high”:
- Roth Conversions:Moving money from a Traditional IRA to a Roth IRA is called a Roth Conversion. This is a tax planning strategy that considers a person’s current and future tax rates. For some, it may be too early in the year to determine the benefits of a Roth conversion, but for others who know they will be able to do some Roth Conversion it might make sense to do at least a partial conversion now. Transferring funds from a Traditional IRA to a Roth IRA while markets are lower, recognizes less tax and puts the future growth in a tax-free account.
- Retirement Account Funding:If you know you are going to fund your personal retirement accounts (e.g. Traditional, Roth, and SEP IRAs) before year-end, why not now with markets off their highs?!
- 529 Funding:If you have the cash to do so, this could be a great time to fund your 529 accounts for your children or grandchildren to take advantage of the future growth potential.
- For starters, please read our summary of the key provisions of the CARES Act in our April 3rd WealthNotes.
- With the CARES Act, Required Minimum Distributions (RMD) from retirement accounts (including Inherited IRAs) were eliminated for 2020. If the funds aren’t needed, allow those accounts to continue growing on a tax-deferred or tax-free basis.
- If you are able to stop your RMD distributions, evaluate the impact this has on your tax projection and consider a Roth Conversion.
- With the CARES Act, it’s not too late to make your 2019 IRA contributions! The new deadline is July 15, 2020.
As mentioned at the beginning of this article, most of us have more time at home these days. This is the perfect time to work on projects we typically put off. Here are a several areas of your financial house to consider getting in order:
- Estate:This is probably the most overlooked area of all our financial plans. If you are reading this and you don’t have estate documents, it’s not too late! If it has been a long time since you updated your documents, your life circumstances or your desires may have changed. Consider reaching out to your attorney to evaluate the plan. This could also be a great time for a thorough review of your beneficiary designations and account titling (e.g. individual, joint, trust, Transfer on Death) to assure your estate assets pass as you wish.
- Insurance:Many of us evaluate our health insurance annually. But when was the last time you evaluated your life, disability, or property insurance needs? Or have you ever evaluated your long-term care insurance needs?
- Mortgage: Mortgage rates decreased early this year, bounced around the past couple months, and now they are back near historic lows. This could be a good time to reduce your monthly payment, save interest, and maybe even shorten your payoff term.
- Investment Account Consolidation: Most of us want to keep our personal Balance Sheet simple, but it gets cluttered. We change jobs or move over the years and before we know it we have accounts at many different financial institutions. Grab a broom and sweep your accounts!
If any of these planning ideas are of interest to you, let us know. We’d love to help you simplify in this season, clarify a plan going forward, and be an encouragement in the process. We enjoy getting our hands dirty with a little Spring cleaning!