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Utah Business

Our experts share what you can do to make your financial plan foolproof after the pandemic.

How to strengthen your financial plan after a pandemic

After the novel coronavirus swept across the US, markets roiled, and governments tried to contain the damage, Americans are searching for things they can control. Things like putting to good use extra time created by social distancing, making sure loved ones are doing well, understanding how governmental actions might affect our plans, and contributing to the general good. Importantly, taking control of your financial wellbeing, in addition to physical and mental wellbeing, is crucial during this time. 

To begin, discuss with your family and your advisor how you are feeling in the wake of this shock, and hear their views on the impact of current measures to mitigate the impact of COVID-19. Use them as a sounding board to revisit and review your goals, and the actions they have taken to help meet them. Ask important questions: Has it changed your views? Are you still comfortable with the assumptions on which you’ve based your portfolio, personal wealth plans, and estate plans? Are your investment accounts positioned to support your long-term goals?

The pandemic has uprooted lives and plans, and in addition to reviewing your overall financial goals there are some actions that may help you strengthen and take control of your financial strategies.

Assess your best planning strategies

Governments around the world have launched unprecedented levels of support for businesses and their workers. They are working extensively to control COVID-19, while seeking to develop a vaccine in partnership with the private sector. In the US, the government is updating policy in regard to investment accounts – for example, two important changes were made regarding retirement accounts: 

First, IRA owners and beneficiaries do not have to take what would have been their required minimum distributions (RMDs) from their retirement plans this year. Federal lawmakers recognized that because RMDs are determined based on the last day of the previous year, distributions this year would be outsized if withdrawn from current, potentially depreciated portfolios. Lawmakers are giving IRA owners time for their portfolios to recover. Additionally, the deadline for last year’s contributions to your IRA, originally April 15, has been extended to July 15.

Explore philanthropic opportunities

Nonprofits sorely need donations to help ease the suffering caused by COVID-19, in order to remain operating as employers, and to continue the work they’d be doing even without a crisis. The US government is seeking to encourage charitable giving, both large and small. The CARES Act created highly unusual provisions that allow donors to deduct up to $300 in cash contributions made to charitable organizations this year, whether they itemize or not. Donors may also reduce their tax bill to zero if they donate to a public charity a cash amount equal to their 2020 adjusted gross income. However, contributions to donor-advised funds or private foundations would not qualify for these provisions.

Reevaluate your estate plan

Part of reviewing your financial goals can include a close look at your estate plan. Right now, low rates enable several significant estate planning opportunities, like transferring wealth to the next generation or another family member. For May 2020, the Federal 7520 Interest Rate is currently 0.8 percent, and anticipated to be 0.6 percent in June. The Applicable Federal Rate (AFR) for obligations of more than three and up to nine years is 0.58 percent, and the AFR for obligations of less than three years is 0.25 percent. With the current rates, transfers or refinancing can save you money, and help stabilize changes to your wealth due to COVID-19. 

Make sure your investing Is “tax aware”

As the markets began to seesaw, investors are especially eager to take action to brace their portfolios as they experience losses. A strategy to consider is “harvesting” the losses, or using them for tax purposes to offset gains, now and going forward. If investors proceed with this strategy, it is important to be aware of the “wash sale rule” that, if triggered, can delay your ability to take a loss you incurred on the sale of a security. 

  • Here is what you CANNOT do if you want to take a loss: Sell the security at a loss and buy that same position, or a substantially identical security, within 30 days before or after selling the loss position.
  • Here is what you CAN do: Sell the security at a loss. If you want to maintain the exposure to the same sector or industry, buy a different security with similar characteristics. For instance, you might sell stock in one technology company and purchase shares in another technology company or a technology-oriented mutual fund.

Using a tax-loss harvesting approach might help you take a fresh look at your portfolio, but it is essential that you consult with your tax advisor so you don’t run afoul of the wash sale rule.

The pandemic has replaced much of the public’s economic optimism with uncertainty, but it is important to look forwards, not backwards. Reviewing previous periods of turmoil – including major geopolitical events, financial crises and market crashes – can help to reassure us that conditions will return to normal at some point. However, every crisis is different so it’s important to stay informed about is what is happening today and ensure your financial plans are in place to take advantage of opportunities now and to protect you for the future.

Managing Director Brian Swenson and Executive Director Eric Smith of J.P. Morgan Private Bank in Salt Lake City co-lead a team of local professionals who provide wealth management advice, strategies and services to successful individuals, family offices, foundations and endowments throughout the region. J.P. Morgan Private Bank has been serving clients in Utah for nearly 20 years and established their local office in 2019.