Given all the planning landscape changes over the last month, are there specific things you should now be considering? Here are a few ideas that may be worth exploring, especially now.
The CARES Act suspended the need to take required minimum distributions (RMDs) from your IRA and qualified plans. If you are in the post-SECURE Act age bracket that requires you to take distributions, and you do not currently need the cash flow, converting some assets to ROTH can certainly be more advantageous. While this depends on each person’s circumstances, Roth conversion in 2020 may be efficient for several reasons. If you were to move the assets in kind from a traditional IRA to a ROTH IRA while the market is down, you pay less tax on the conversion. If you are not required to recognize the income from required distributions, this may be a low income tax year. If so, it may be more efficient to convert while RMDs are suspended. Remember, this is a one way street as conversions cannot be reversed, as recharactsrizations are no longer allowed.
Who Receives What?
Perhaps now you may have more time available. If so, this might be a good time to review all your trusts, wills, Powers of Attorney, Medical Directives, trusted contact designations, and beneficiary designations to see if any changes should be made, or ensure that past changes were completed to your satisfaction. This would be a good time to verify that accounts are owned and titled correctly, either individually, jointly, or in trust, and have TOD or POD designations (if necessary).
Discuss with your accountant the extended tax deadlines for filing and payment, and how you might be able to get information to them earlier via secure e-mail.
Calculate Cash Flow
Some people do not need a budget; however, many do. If you have some extra time, now would be a great time to reconcile cash flow. As you are reviewing information for tax filing, start with your adjusted gross income from your tax return. Add to this any non-taxable income, like part of Social Security and any gifts received or new debt incurred. This will give you cash flow in. Subtract taxes, deferrals into retirement plans, reinvestment for non-qualified plans, intentional set-asides, and health insurance costs. If you have a paystub, this might be even more straight forward as you can use your net pay instead, then make adjustments. Either way you should be able to end up with a figure of what you could save each year with no expenses. Now, ask yourself, how much of that are you saving? If zero, you can see what your expenses really are. If you are saving an additional $10,000, then your expenses are $10,000 less than your cash flow in. Using your net pay from your paystub, if savings other than through a company plan is zero, your net pay equals your expenses.
Many are shocked when they compare this to the traditional way, which is cash flow in, less expenses, equals savings. Tabulating expenses is nearly impossible to do accurately. Instead, cash flow in, less savings, equals expenses. You can more easily track what you save.
These are some general ideas; the important part is “are they important for you?” As usual, discussions with your Wealth Manager, tax counsel, and legal counsel can be very valuable.