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Families and Young Investors Should Consider These Financial Planning Opportunities

The Coronavirus has presented many unique challenges to every world citizen.  In response to the spread of COVID-19, a number of relief options have been made available to American taxpayers in an attempt to financially navigate our challenges.  We want to help you identify the opportunities within these options and focus on the valuable financial planning decisions ahead.

Get Your Stimulus

The government is in the process of distributing stimulus payments to all qualifying taxpayers.  Many who received a 2018 tax return via direct deposit have already been paid.  Here is a helpful link to determine what your stimulus payment should be:

Accelerate Planned Annual Savings

Buy Low and Sell High, Right?  Well, if you find yourself in a good financial situation, or maybe receiving a stimulus payment you don’t really need (see above), you may take this opportunity to meet your annual savings goals earlier than planned.  Major market indexes, interest rates, and company stock prices have fallen hard and fast.  Transfer your Venmo balance, reset your emergency fund accounts, and find the money you’ve been hiding from yourself to meet your planned investment contribution goals now while prices are low.  If you need to really get into it, let’s review your budget in detail, or check out this fun calculator by @Zippia to determine how much you may be saving each month just by working from home – it may help you move more money to investment assets now and avoid additional mental delays.

Roth IRA Conversions and Contributions

I am a firm believer in the Roth IRA as the MVP of Retirement Planning.  If you have qualified pre-tax retirement money, now may be a good time to consider converting it into a Roth IRA.  You are allowed to convert pre-tax retirement savings into Roth IRA savings by claiming the converted amount as ordinary income.  If your Traditional IRA has a holding in it that was worth $50,000 before the onset of the coronavirus economic impact, and it fell in value to $25,000, you can convert it to a Roth IRA by claiming the current value as income.  You would thus be paying income tax on $25,000 vs. $50,000, but converting the same asset!  If the position recovers in value, it enjoys its recovery in the MVP account! On top of all that, we have historically low income tax rates, so why wait until the account has grown and tax rates have risen?  There are almost too many flashing lights in our eyes that we should consider, and consider now!

As you may know, you are restricted in how much, if at all, you can contribute on an annual basis to a Roth IRA.  A silver lining in the lost income of many is that they may now qualify to make Roth IRA Contributions.  To learn more about your options and the benefits of Roth IRAs, please schedule a time to chat with us.

Student Loans

If you are making student loan payments, all payments have been automatically deferred through September 30, 2020.  While that may be needed relief for those financially impacted, it may also be an opportunity to invest additional funds or continue making loan payments that go 100% toward the loan principal while payments are deferred.  We are happy to help you consider these options and take action on whichever makes sense to you.

Qualified Plan Distributions and Return of Distributions

The CARES Act has also enabled you with the option of taking the lesser of 100% of your Qualified Plan balances, such as IRAs or 401(k) Plans (if they allow in-service distributions), or $100,000 without paying a 10% penalty for taking an early withdrawal.  You will still need to pay taxes on these distributions; however, the distribution can be spread out across the 3 tax years (2020-2022) vs. taking all at once!  Also, if you are able to return any or all of your withdrawal BACK into the tax-deferred retirement plan, you have 3 years to do it!

Refinance Loans and Reduce Borrowing Cost of Liabilities

As interest rates have been cut to their lowest levels since the financial crisis, now is the time to consider opportunities to refinance loans, such as mortgage and auto loans, and consider any other way to reduce your current borrowing costs.  We are happy to help you consider your refinance options, including mortgage cash-out options to pay off high interest debts, like credit card balances.

Transfer Wealth During Low Interest Rates

Low interest environments are a good time to plan any significant wealth transfers via grantor retained annuity trusts (GRATs), family loans and business succession plans, charitable gifting and charitable contribution income tax deduction increases, and more.  For more information on these strategies, contact us or read how Low Interest Rates Present Numerous Wealth Planning Opportunities

Extended Tax Deadline

If you haven’t already filed and paid your taxes by now, rest assured – you are not late!  The Federal tax filing deadline has been extended to July 15, 2020.  States may have different requires, so use this Nerdwallet post (As of 4.8.20) for updates on your state’s deadline. We would not recommend investing any planned tax payment dollars due to this extension, as market volatility and uncertainty does not make such short-term investing suitable for most investors; but, by all means, let those tax payments sit in an interest bearing FDIC insured account for a few extra months.

Take action!

At Symphonic Financial Advisors, we focus on building plans, portfolios, and strategies that weather times of uncertainty and are flexible given different outcomes, like the changes in interest rates, inflationary assumptions, and many other geopolitical and economic variables.  Now is a good time to review existing annuities to do a cost-benefit analysis of using the annuity as purely an income tool vs. moving it elsewhere.  If you have not tested each of your strategies for their worst case scenario and accepted the impact on your comprehensive plan, let us do it for you!  And let’s do it now!

Joe Calhoun, CFP®

Joe Calhoun is the Director of Financial Planning for Symphonic Financial Advisors, guiding our Financial Advisors in delivering custom-tailored planning services for clients.

DISCLOSURES: The information presented does not involve the rendering of personalized investment, financial, legal or tax advice. This presentation is not an offer to buy or sell, or a solicitation of any offer to buy or sell, any of the securities mentioned herein. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results and are based primarily upon a hypothetical set of assumptions applied to certain historical financial information. Certain information has been provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed. Any opinions, projections, forecasts and forward-looking statements presented herein are valid as on the date of this document and are subject to change. Past performance is no guarantee of future performance. As with any investment strategy, there is no guarantee that investment objectives will be met, and investors may lose money.