5 Financial Planning Considerations for High Net Worth Individuals during the COVID-19 Pandemic

Economic uncertainty, high unemployment levels, social distancing, and lock-downs have caused confusion, stress and panic for many people. Some have experienced a slower pace of life, with more time to learn new skills, and examine personal values and priorities. Though the financial markets are uncertain, there are action steps you can take now, particularly if you are experiencing some unexpected downtime, to take some control and perhaps improve your financial situation and help others in the process. Disclaimer: This information is not to be considered tax advice and none of the information provided here should be acted on without consulting a tax and/or financial advisor.

1.Consider converting part of your Traditional IRA to a ROTH

While the market has rebounded somewhat after the initial shutdown of large portions of the economy, this still may be a good time to consider all or a portion of your IRA to a ROTH IRA, particularly if your income is lower this year. Doing so would require paying federal and state income tax on amounts withdrawn. The benefits of paying the taxes now are: 1. Instead of growing tax deferred, assets in a ROTH IRA grow tax-free and are not subject to required distributions at any age. 2. Inherited traditional IRA’s from a beneficiary after January 1, 2020 no longer can be stretched over a beneficiary’s lifetime- the account must be fully distributed within 10 years. ROTH IRA’s have no required distribution rules. 3. Income tax rates are near historical lows. If you believe tax rates will be higher in the future, it may be worth paying taxes now rather than later. There are many factors to be considered in this strategy, such as your age and the source of funds to pay the taxes in the conversion.

2. Review Estate Plan and Beneficiary Designations

If you have some down time while practicing social distancing, consider reviewing your beneficiary designations on all of your retirement, investment and bank accounts to make sure they are directing your assets where you would like them to go upon your death. If you don’t have specific beneficiary designations and plan that your assets will pass to your loved ones through the designations in your will, know that they will first have to pass through probate, which can have a cost and a time delay associated with it.

3. Skip 2020 Required Minimum Distributions on IRA’s

While the SECURE Act changed the mandatory age to begin taking Required Minimum Distributions (RMD) from retirement accounts from age 70 ½ to age 72, The CARES Act eliminated the requirement altogether for the tax year 2020. This applies to ALL retirement accounts- whether you are the owner or the beneficiary (think Inherited IRA account). If you have not yet taken your RMD for 2020 and don’t need the money, you may consider not taking the distribution and avoid increasing your taxable income. If you have taken it, and would like to reverse that decision, different rules apply for owned IRA’s and inherited IRA’s. If you took a RMD from your IRA in 2020 and would like to reverse your decision, you have until July 15th to return the distribution to your account. If, however, you took an RMD from an Inherited IRA, you have 60 days from the date of the distribution to return the funds.

4. Consider a Charitable Contribution

Even though the SECURE Act changed the age of mandatory IRA distribution from 70 ½ to age 72, Qualifed Charitable Contributions from an IRA are allowed up to $100,000 at age 70 ½. Furthermore, the CARES Act removed the 60% limitation on the deductibility of cash contributions to a qualified charitable organization so that in 2020, up to 100% of adjusted gross income is deductible for those who itemize deductions. Even if you don’t itemize, there is a $300 above the line deduction allowed for cash gifts to qualified charitable organizations. 

5. Tax Loss Harvesting

Though the market has rebounded from the lows in March, there may still be an opportunity to sell positions and capture losses that could be used to offset future gains in your portfolio. The proceeds could be used to purchase a similar position in the same asset class to preserve your asset allocation strategy. We recommend consulting with an advisor to avoid the pitfalls of wash sale rules.

These are just a few of the opportunities that might be presented during the COVID-19 crisis. Other considerations include delaying the payment of income and estimated tax payments, rollover strategies for those entering retirement (elected or not) during this time, and extensions to make 2019 IRA contributions.