Should I Withdraw from My 401(k) During a Pandemic?

Over the past several months, the pandemic has led many Americans to financial hardships. Individuals are fearful of how they’ll meet their financial obligations. The stimulus package may help alleviate some of the concerns, but what about those who still won’t make ends meet? When those funds have been exhausted, what options are next? As expressed in our previous communication, withdrawing from your 401(k) savings may sound tempting, but there are other alternative options. Analyze this from a case-by-case perspective:

• Reduce monthly expenses. Do you have monthly subscriptions that can be temporarily suspended or discontinued entirely to cut monthly costs? Examples include Netflix, Hulu, YouTube TV, etc. Consider keeping only one subscription that works for the entire family.
• Student loans. The stimulus package offers a six-month payment break for individuals with federal loans.1 This means individuals are automatically enrolled into this program by default. Payments will not be due within the next six months from March 2020 through September 2020. Interest will not be incurred; therefore, the outstanding amount on the loan won’t increase during this period. Borrowers are allowed to opt out of this program by calling their servicing provider.
• Utilize emergency funds. Resort to emergency funds first. In theory, this is why emergency funds were set up to begin with–a means of easy access during unprecedented times.
• Selling some stocks for immediate cash. The question of whether or not selling stocks during a crisis is smart has become a common question amongst investors. It’s important to not panic-sell. Instead, allow us to offer you a no-cost, no obligation consultation to present you with options that’ll best suit your situation.
• Refinancing student loan debt, mortgage payments, or car payments. If your student loan lender didn’t fall under the stimulus package, consider refinancing or going into forbearance. Although prolonging the life of the loan long term isn’t something we’d want to do, it can offer short term relief. This also applies to mortgage and car payments.

You work hard for your 401(k) savings plan. They’re not something that has been saved overnight but has taken many years of contribution. The value of your account could be worth much more years from now if left untouched.

CARES Act: Retirement Provisions and What They Can Mean to You

In response to the economic fallout of the COVID-19 pandemic, the CARES Act contains a number of essential measures important to the financial security of the American population. This far-reaching legislation offers protection and support to small businesses, hospitals, and individuals, such as more flexibility with your retirement accounts. Here, we’ll discuss some of the changes and the impact they may bring to your retirement income strategies:

1. Required Minimum Distributions (RMDs) are suspended for 2020. These include 401(k)s, 403(b)s, 457(b) plans, and IRAs. This gives retirees the opportunity to leave their investment portfolios alone for another year to recover losses incurred during the volatile markets. Those that have already taken their RMD for 2020, the CARES Act doesn’t allow for repayment of the RMD back to their retirement plan. However, there’s a 60-day grace period which allows RMDs to be rolled over into a new IRA.1
2. Roth IRA conversions during this time could result in substantial tax savings while markets are down, and tax rates are lower. Since the bill allows you to skip RMDs for 2020, you can convert assets from a traditional IRA to a Roth IRA without having to satisfy the typically required RMD.2
3. Cash contributions to qualified charities are fully deductible up to 100% of a taxpayer’s adjusted gross income (up from 60% previously). Taxpayers who don’t itemize their deductions are entitled to a “above-the-line” deduction of up to $300 for qualified charitable contributions.3

COVID-19 and Your Retirement

Could COVID-19 change our lives forever? Undoubtedly so. The viral outbreak has absolutely upended our lives. With the stock market meltdown that began on February 20, 2020 and panicked headlines dominating the news, the financial confidence of many Americans was shaken as unprecedented measures began to unfold. While some uncertainties may lie ahead, you might be wondering where does it leave you with regard to retirement planning. Here are two big questions that may be keeping you up at night:

1. Should I be concerned about the market volatility? Investing in an ever-changing environment can evoke many emotions. While stock market woes can make you anxious and wanting to sell, remember the fundamental principle that you should buy low and sell high. And now may not be the time to sell. Many opportunities may lie ahead of you. So, tune out the noise and let us do all of the work. We’ll continue monitoring the situation and will keep you apprised of any relevant developments.
2. What should I do about my 401(k)? The memes you may have seen on social media couldn’t have said it better: don’t touch your face–or your 401(k). The best move you can do now may be no move at all. If you have a well diversified portfolio, you should be able to ride out the wave. If it would lessen your worries, we’d be more than happy to revisit your investment strategy.

COVID-19 has pervaded the minds of many. If you’re retired, or nearing retirement, we understand that this could be a particularly stressful time.

Get Time On Your Side: Late Retirement Planning Strategies

If you’re feeling behind when it comes to retirement savings, you’re not alone. A surprising 70% of Americans are either falling short or don’t know where they stand.1 If you find yourself in this predicament, it’s time to stop worrying and take actionable steps. We’ve gathered a few tips that can help you build a respectable fund to salvage your retirement:

• Spend less, save more. As simple as it sounds, it may not be an easy task. Not only do we tend to overspend on items we think we need, but we also spend our money before we’ve even earned it. Review your financial statements and reevaluate what you’re spending on a monthly basis. By seeking out avoidable expenses and cutting them out, you’ll gain more than you lose. You’ll come to find that these little savings will add up over time and can contribute significantly to your retirement plan.
• Work longer. This may be not be ideal for everyone, but working longer can be a tactical way to improve your retirement security. Not only does staying in the workforce mean keeping your earnings and benefits (medical coverage and continued contributions to retirement accounts), but you can expect fatter checks from Social Security every year that you hold off on claiming. Waiting until age 70 can get you a boost of an extra 8% per year.2
• Downsize. Chances are you grew up dreaming of having a large home with all of the bells and whistles. But as you head into your older years, living a simple and modest lifestyle may more suitable. Choosing to downsize your home by purchasing a smaller and less expensive home can offer many financial and health benefits. Your mortgage payments, maintenance, and utility costs could help put more money back into your pockets, and downsizing could also give you a home with greater accessibility.

Regardless of where you are in life, you can still make up for lost time.

Build Tax-Free Income For Retirement

If there’s one thing almost everyone can agree on, it’s not wanting to pay taxes. After all, who wants to give up their hard-earned money to the government? The retirement savings gap is a multifaceted issue for many working people. With many challenges workers face, it’s easy to forget about taxes when it comes to saving for retirement. If you’re planning for retirement or nearing retirement, minimizing taxes is essential to a successful retirement plan. Here are three ways you can potentially accumulate tax-free income in retirement:

1. Permanent life insurance. This is a wonderful tool that offers you the ability to transfer your assets tax-free (both income and estate) to beneficiaries and also build up tax-deferred growth of cash inside the policy.
2. Health Savings Account (HSA). They’re unique for their triple-tax advantage: contributions are tax deductible, funds grow tax-free, and withdrawals are also tax-free, if used properly.
3. Roth IRA. After age 59 ½ and as long as you’ve had the account for at least five years, earnings grow tax-free and you can withdraw contributions at any time without tax or penalty.

Most Americans will enter their golden years with less money than they need, so it’s wise to find ways to minimize or avoid the tax bite. Through thoughtful planning and a sound strategy, you can keep more of your money.

How the SECURE Act May Impact Your Retirement

The retirement landscape is constantly in flux as Americans adapt to the ever-changing financial environment. On December 20, 2019, President Donald Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act as an effort to reshape and modernize our country’s retirement system. With most of its provisions effective this year, here are some key influencing factors that this new legislation could have on your retirement:1

• Inherited IRA distributions must be taken within 10 years. Prior to 2020, if you inherited an IRA or 401(k), you could “stretch” your distributions over your lifetime. Under the new law, “stretch” IRAs now loses its flexibility and are required to be withdrawn within 10 years following the death of the account holder.
• Required minimum distributions (RMDs) age increased to 72 from 70 ½, effective to those reaching age 70 ½ after December 31, 2019. Americans are working longer and can now defer withdrawing until age 72. If you turned 70 ½ last year and have already began withdrawals, the new rule does not impact you.
• No more age restrictions on IRA contributions. With Americans living longer and working past the traditional retirement age, they’re now able to contribute indefinitely. This means you can continue contributing to your traditional IRA past age 70 ½ as long as you’re still earning income.
• Long-term part-time workers can now participate in 401(k) plans. The new act expands access allowing part-timers who have worked 500 hours at the job over three consecutive years to be participants in 401(k) plans.

The SECURE Act is widely considered to be the biggest set of retirement reforms in more than a decade. As rules on retirement changes, your approach to retirement planning should too. We’re a team of professionals dedicated to client results.