Welcome to Retirement Scan, our daily roundup of retirement news your clients may be talking about
Seniors who are worried about retiring amidst the coronavirus-driven crisis can still pursue their retirement plan but will need to make a few moves, according to this article in MarketWatch. They are advised to rerun their financial numbers and focus on what they can control, such as their reaction to market volatility. Pre-retirees also need to shore up their emergency savings, avoid making investment decisions based on emotions and consider taking on a side hustle to boost their income.
Converting traditional retirement assets into a Roth account can be a smart investing move for clients, as the market decline would help reduce the tax bill on the conversion, according to this article in The Wall Street Journal. By doing a Roth conversion, clients would also boost their after-tax income in retirement, as Roth distributions are not subject to penalty and taxes, according to the article. “There is a window now where it’s super-attractive in my opinion for most people to consider conversions,” an advisor says.
Clients who are affected by the coronavirus crisis are advised to weigh their options before borrowing, withdrawing or cashing out their 401(k) plans to improve their cash flow, according to this article in Motley Fool. That's because they would end up facing income taxes and a hefty penalty, according to the article. Clients who opt for a life insurance loan might also face a tax liability if they allow the policy to lapse. Taking distributions from a Roth IRA has no tax implications, but it would lead to lower earnings in the future.
Compound interest can work wonders on a client's retirement portfolio, as it will turbocharge investment growth over time, according to this article in Yahoo Finance. However, compound interest could have disadvantages, such as boosting high-interest debt and generating additional expenses within the portfolio. Clients who tap into traditional 401(k)s and other tax-deferred accounts would also miss out on the opportunity to grow their investments over time.
“Recent further Fed action from COVID-19 seems to put another layer on a near-40-year bond bull market,” an expert says.
Financial advisors may consider prompting their clients who have 401(k) assets with their former employers to roll over the funds to an IRA, an expert writes at TheStreet. Advisors can also advise their clients with shares of their employers’ stock inside a 401(k) to take advantage of the net unrealized appreciation rules, he adds. "The NUA rules allow your client to take a distribution of the shares in-kind into a taxable account. They can still roll the balance of the 401(k) account that isn’t invested in the company shares to an IRA to maintain the tax-deferred nature of the account."
