Your Wealth: Take Control amid the Chaos

Woman looking for opportunities

These are strange times. During an upheaval like this, it’s all too easy to worry about the present and the future. 

But that doesn’t mean you’re without options. In fact, there are a lot of ways you can take control and actually strengthen your financial position right now. Financially, you know that now is the time to keep a cool head. Panic-selling only locks in your losses—taking a worry and turning it into a reality. 

Identify buying opportunities 

Equities are down significantly from historic highs. That could mean opportunities to invest in asset classes and companies with track records of long-term strength while prices are depressed. Some investors, optimistic of a stronger market by year-end, are front-loading retirement accounts now. 

Rebalance high-performing investments 

Most people know that when it comes to investing, buying low and selling high is the goal. That takes discipline—which is where we often provide the most direction for our clients. 

It’s natural to be excited when a certain holding is doing well. But it’s important to always have an eye on your overall asset allocation. Is the relative success of one asset class performing well, while another is not? 

Now may be the time to sell some of your top performers. You could use those profits to buy other investments that have been hit by the current crisis but should recover when the virus passes. 

Consider a Roth IRA conversion 

During good times and bad, tax-savvy moves should always be a priority. After all, eliminating or postponing a tax at, for instance, a 30% tax rate is huge. It’s rare for the stock market to provide a similar return! 

One great example of a smart tax strategy is a Roth IRA conversion. You may cringe when you look at your retirement plan balances right now. But that drop in value actually provides an opportunity and could work to your advantage if you can roll a traditional IRA into a Roth IRA. 

Here’s how it works. You take assets in your traditional IRA (maybe just enough to push you to the limit of a specific tax bracket) and transfer that to a Roth IRA. That’s the “conversion.” 

Although you’d have to pay income tax on the rollover amount, the tax would be less (potentially much less) because your current IRA value has likely dropped in value. 

And like any retirement account, the funds grow tax-free in the years to come. The difference with your converted Roth IRA is that down the road—regardless of what the account value may grow to—any qualified withdrawals will be tax-free! 

Refinance debt 

With the Federal Reserve dropping interest rates to rock-bottom levels to stimulate the economy, now is a good time to take a look at your debt. You may find opportunities to refinance. 

Reducing your own borrowing costs provides a plethora of options. It may allow you to: 

  • Keep the same monthly payment but shorten your loan term, so your debt is paid off sooner, or
  • Reduce your monthly payment, freeing up cash for other opportunities such as:
    • Building up your emergency fund to six months of living expenses or
    • Investing in the currently lower stock market
  • Do a cash-out refinance—meaning you pay off higher-interest debt (cars and other consumer debt) and consolidate it all in a lower-interest-rate mortgage 

See if you qualify for new stimulus programs 

Both the state of Iowa and the federal government rolled out some impressive programs recently. Designed to provide relief for those whose incomes or businesses are suffering due to the coronavirus outbreak—as well as to encourage new spending—these programs shouldn’t be overlooked. 

The $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act includes a wealth of benefits for those impacted by the outbreak—including businesses, W-2 employees, the self-employed and more. Below are just a few of the benefits from the CARES Act. This article from The National Law Review does an outstanding job of explaining additional benefits.

  • Paycheck Protection Program. Employers with fewer than 500 employees (although there are exceptions) can receive 100% forgivable loans of 2.5 times average monthly payroll. The money must be used to maintain payroll (and potentially other business expenses) for at least eight weeks. Learn more.
  • Recovery rebates of up to $1,200 for single and heads of household and $2,400 for married couples, plus an additional $500/child; subject to income phaseouts.
    • These automatic cash payments phase out for individuals making more than $99,000/year and married couples making more than $198,000/year.
    • College students and other young adults qualify as long as they’re within the income range and aren’t claimed as a dependent on anyone else’s tax returns.
  • Greater access to retirement plan savings. If you’re under age 59 ½, you’d normally pay a 10% penalty for early withdrawals from most retirement plans. If you’ve experienced coronavirus-related financial hardships, however, you can now withdraw up to $100,000 in early distributions from your retirement plans with no 10% penalty.

Keep the following in mind:

  • Distributions will still be taxed as income.
  • Distributions can be repaid within three years and receive a tax-free rollover treatment.
  • Unless you choose to pay tax on the distribution in the year withdrawn, the income will be taxable over a three-year period beginning in the year of distribution. 
  • Waived rules for required minimum distributions (RMDs). Investors age 72 and older are required to take withdrawals from most retirement plans and IRAs. However, this requirement has been waived for 2020. 
  • Extra unemployment benefits. In addition to your state’s unemployment benefit, you can receive an additional $600 per week in unemployment benefits from the federal government if you’re unable to work or are working reduced hours as a result of the coronavirus. This benefit even applies to those who are self-employed or work part-time. Iowa residents can learn more and apply for unemployment benefits through Iowa Workforce Development.

We’re here to help

In the midst of all this uncertainty, we can help you move from fear to action. Contact us to start the conversation. Stay well!