Every night has its dawn,
Just like every cowboy sings his sad, sad song
Every rose has its thorn
These wise words come to us from a band named Poison back in the '80s. It was a time when people used to pay for music, and the only thing in short supply at the supermarket was hairspray. But here we can find a bit of wisdom reminding us that this is the natural way: with all good things, come some bad. With long bull markets, eventually comes the bear. Now that the markets have entered a time of volatility brought on by the spread of COVID-19, it’s easy to be overwhelmed by bad news and uncertainty. Not you though - you are going to use this time to your advantage, and here are a few concepts that could help you or someone you know.
- Roth IRA Conversions – This may seem like a mystical concept, and there is a definite tax implication, but let us understand what a Roth IRA Conversion is and why it might be a great time for one. If you have money in a 401(k) or Traditional IRA, then you have what we call tax-deferred money. You don’t owe any money on taxes while the money accumulates, but when you begin pulling the money out in retirement, you will pay taxes (whatever they are at that time) on whatever amount you pull out.
If you convert that balance or a portion over to a Roth IRA, you elect to pay the taxes now (they are historically low) and on the current balance (high chance it’s lower now than it was a few months ago). From that point on, you will never owe taxes on that money again – no matter how high it grows and regardless of other income you have. This is really something to look at if you think you will earn less income than a typical year.
- The Paycheck Protection Program – If you or someone you know runs a small business with less than 500 employees, you need to investigate the Paycheck Protection Program – part of the historic stimulus recently passed by the federal government. This is a game changer for those worried about getting through the quarantine and taking care of their employees. For more info, go to sba.gov/funding-programs/loans/paycheck-protection-program.
- No Required Minimum Distribution (RMD) for 2020 – The CARES Act states you will not be required to take out the typical age-related RMD from your retirement accounts for 2020. Since RMDs are based on the prior year’s December 31st balance, taking RMDs in 2020 would have a significantly adverse impact on your account.
With that, here are a few more wise words – This Too Shall Pass. Stay safe, stay healthy, and call us to see if any of the above info applies to your situation.
P.S. - We have exciting news! Starting in the very near future, the advisors in our office will begin hosting a podcast where we will discuss life and investing in a way everyone can understand. The podcast will be called “Red Beans & Advice”. We think we found a pretty good name! Stay tuned for more info on how to access the podcast when it’s available. In the meantime, please go like us on Facebook and make sure we have a good email on file for you so we can stay in touch.