2020 has certainly been a wild ride and has presented us with unique financial planning opportunities. Although we are already in the fourth quarter, it’s not too late to take advantage of these opportunities while working on your year-end financial planning strategies.
1. Reduce risk: It has been a year of volatility and uncertainty, to say the least, and taking less risk during this time may be better than taking a roller coaster ride with the market. Now is the time to stress the strength of your financial plan. If the volatility is keeping you or your partner up at night, it may be the time to revisit your allocation and risk tolerance. Remember, there is a difference between day-traders and long-term investors.
2. Optimize CARES Act legislation: COVID-19 shook our economy to the point our government stepped in and put together stimulus packages and legislation. CARES Act was passed and it allows those individuals who are required to take distributions from their IRAs to waive taking them for 2020. This creates the opportunity to save on taxes by not taking a distribution or to maximize the currently low tax brackets and take money out of IRAs efficiently. You should consult your accountant or financial advisor before taking any action.
3. Refinance: Mortgage rates are at historical lows, so if you haven’t refinanced, you may want to consider it. There are several refinance options depending on whether your focus is on paying your home off sooner or helping with cash flow.
4. Take advantage of TCJA rates: Tax rates are not likely to stay this low too much longer. Tax brackets were lowered in Tax Cuts and Jobs Act of 2018 and sunset after 2025. But, the deficit has grown substantially this year because of the pandemic stimulus packages and, eventually, we have to reduce it. Now is the time to consider a Roth conversion or recognizing long-term capital gains.
5. Maximize employer sponsored plan contributions: If your budget allows, try to max out employer-sponsored plan contributions – especially if your company provides a match. It’s a win, win, win. You are essentially receiving free money from your employer if they have a match, your contributions to a pretax plan are saving tax dollars and you’re saving for retirement. Roth options within employer-sponsored plans are a powerful tool too, as that money will grow tax free for the rest of your life.
Securities offered through Royal Alliance Associates, Inc., member FINRA/SIPC. Investment advisory services offered through NCA Financial Planners. RAA and NCA are not affiliated. Mayfield Heights, Ohio, 440-473-1115, NCAfinancial.com.
Ashley Costello is a certified financial planner and financial adviser with NCA Financial Planners in Mayfield Heights.
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