Ep. 20: Five Money Moves to Consider Now
For those without sound… Contact Me!
Welcome back to Money Matters where I help guide you in becoming a better and more confident investor. The landscape for retirement rules have been changing impacting you options and what can be done. In this episode I wanted to run through a quick rundown of 5 things that you may want to consider.
- Not taking your RMD. I touched on this as part of being the CARES Act relief package last week where for the year 2020 there are no such things as RMDs or your Required Minimum Distribution from IRA’s or 401ks, or other employer-sponsored plans. Go check out last week’s video if you’re looking for some more information on that. This is a win-win, in that you can let your funds have time to appreciate from the lows caused by Covid-19, and also don’t have to pay income tax on the distribution.
- Avoiding 401k Loans – with all this comes another piece of government relief for workers in that 401k participants can now borrow 100% of their vested balance up to a maximum of 100%. Sure this might seem tempting, but remember you can’t borrow for retirement, which is why I generally wouldn’t recommend this option. The real reason is the opportunity cost. When you take a loan from your plan it’s really just a distribution you are going to have to pay back, and while you’re paying that distribution back it’s not invested in the market. So when this market starts to recover, which it has historically always done before, you are now missing out on participating in those gains which can be a huge blow to you compounding returns which you were saving for retirement. Borrow with caution, and perhaps consider this to be the last resort.
- Roth conversion – For our client relationships whose plan calls for Roth conversion annually, this is a great time to take advantage of doing so. When doing a Roth conversion going from a tax deferred account to tax free account requires you to pay income tax, so why not do that when the account is depreciated?? Then when the account appreciates and you’ve followed the holding rules associated with Roth IRA well then that’s now tax free income.
- Max out your contributions – If you’re financially unaffected by these events and have the means, then this would be a great time to max out your contribution for the year. Frontloading your contributions, meaning instead of me putting in $500 a month towards my Roth IRA, I would just put the $6,000 in at the lower valuations in depressed markets to buy more shares will be better in the long-run as the year continues on assuming the market corrects to the up-side. If you’re employer does conduct a match of your contributions make sure you check with them before altering your contributions to make sure it doesn’t mess up you getting your matched portion since rules change from plan to plan.
- Play the long game – For those client relationship that we have a plan for and I know they aren’t going to be needing the money in the next 5 plus years our team feels that it’s a great time to be purchasing quality funds. And for other relationship who invest with a rebalancing discipline it has been a great time to rebalance their portfolio at these lows, selling some of their fixed income and purchasing stocks.
This is food for thought, and things that you should most definitely be discussing with your advisor. Or if you’d like to discuss it with me, I would be more than happy to do so as it all starts with a conversation. Thank you for catching this week’s episode of Money Matter and giving your finances the attention that they deserve.
