elderly couple sitting on a grey couch together during a meeting with their financial advisor

A Guide to Managing Your Retirement During COVID-19

Retirement planning changes throughout the course of your life. But regardless of your age or where you are in the planning process, COVID-19 and the market crisis should change how you handle your accounts. This drop in the market is a challenge, of course, but don’t panic—all is not lost. Your best course of action is to stay calm, review your accounts, and create a plan. 

We can help you design a plan but, in the meantime, we’re sharing what you should know about managing your retirement accounts during the coronavirus pandemic. Let’s dive in. 

What You Should Know About Retirement Savings During COVID-19

Contributing to Your Retirement

Continue to save for your retirement! Despite the market’s volatility, it’s crucial to remember that you still have financial goals—don’t let this setback keep you from achieving the goals you’ve been working toward for years or even decades. The market will bounce back, and when it does, you want to be able to pick up where you left off, as much as possible. Consult your financial advisor to determine how much you should be contributing to your retirement savings during the market crisis to keep you on track for retirement.

Rebalancing Your Account

Any financial advisor will tell you that a set-it-and-forget-it approach to retirement will not lead you to your savings goal. This is especially true when the economy experiences a significant change. Even if your retirement accounts were well-balanced just a few days before the market began to fall, now is the time to check-in and rebalance based on the current climate.

Taking Early Distribution

When you take an early distribution from your IRA or 401(k), the IRS usually charges you a 10% penalty for early withdrawal. However, under the recently-passed CARES Act, this rule has changed for 2020 distributions. The 10% tax penalty is waived for “affected individuals” for distributions of up to $100,000 taken on or after January 1, 2020.

Note that not everyone is considered an “affected individual.” You are considered “affected” if you, your spouse, or your dependent contracts coronavirus. You also qualify for this relief if you are financially affected in some way—due to furloughs, closures, reduced hours, or otherwise being unable to work—during the pandemic.

Note: The CARES Act has made it substantially easier to remove money from your retirement account in 2020; however, this should only be considered for severe situations.

Taking Required Minimum Distributions

The CARES Act has also waived required minimum distributions (RMDs) for 2020. Typically, those who are of a certain age—as of 2019, the age was 72—must take a distribution from their retirement account each year. This requirement has been lifted for 2020, allowing account holders to keep their funds in a tax shelter while also protecting them from having to sell assets when the market is so low. Depending on your financial situation, skipping your RMD in 2020 could also keep you from entering a higher tax bracket, keeping your tax bill down.

Funding Your IRA for 2019

You are required to fund your IRA or Roth IRA by Tax Day, which is usually April 15. It is important to note that because the federal government pushed the tax deadline to July 15, 2020, you can now continue funding your IRA for 2019 until that date. Talk to your financial advisor to determine if this is the right move for you and your tax circumstances.

Converting Your IRA to a Roth IRA

If you have an IRA, your balance is likely much lower than usual. While it’s unfortunate, now is an opportune time to consider converting your IRA into a Roth IRA. This move would allow your earnings to grow tax-free. Of course, you will be required to pay taxes when you make the switch; however, the amount of taxes you pay will be much lower when your balance is low. Under the right circumstances, this strategy could push your retirement plan forward when the market is stronger. 

My team can help you build a long-term strategy to meet your financial goals. Contact us to discuss how to get you back on track for the post-retirement life you deserve.

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