How to keep 401(k)s on track during the coronavirus: Tax Strategy Scan

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Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.

How to keep your clients’ 401(k)s on track during the COVID-19 crisis
A few tips can help workers ride out the coronavirus crisis and ensure that their 401(k) savings stay on track, according to this article in Forbes. For starters, clients should not avoid making hasty decisions because of their anxiety over market decline. They may need to rebalance their 401(k) portfolio more often to address asset allocation shifts because of the downturn, according to the article. “Most retirement plans do not contain any transaction costs, and taxes are not a factor, so you should rebalance your portfolio weekly,” according to a CFP.

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9 ways the coronavirus stimulus can boost your clients’ financial future
Clients are advised to make the most of the programs, tax law changes and other incentives under the CARES Act to improve their financial prospects, an expert in MarketWatch writes. One way they may take advantage of the law is to accelerate their contributions to retirement accounts so that they will have more time to gain from tax-favored growth and the chance to buy stocks at reduced prices, according to the expert. Under the law, clients may also dip into these accounts early without penalty and will benefit more from a Roth conversion, while retirees can skip RMDs and reduce their taxable income for this year, according to the article.
How clients can get their 2021 refund sooner
Clients who are expecting to receive a tax refund for 2020 do not have to wait until next year to collect the windfall, especially now that they may need the money because of the financial hardship caused by the COVID-19 crisis, according to this article in Motley Fool. To get their future tax refund, clients should adjust their tax withholding, according to the article. "The problem is, when you've paid too much in taxes, you can't just get the excess back whenever you need it. If your hours are cut due to coronavirus or you face an unexpected expense, you can't ask the IRS to give you back your money.”

Retirees don't have to take RMDs this year. But what if they already did?
Retirees have the option of skipping the RMD from their retirement accounts for this year, thanks to the CARES Act, according to this article in Money. The IRS is likely to issue guidelines that will allow those who have already taken the mandatory distribution but do not need the funds to put the money back to the account. Returning the withdrawal can be a smart move, as additional taxable income could move them to a higher tax bracket and result in higher Medicare premiums, according to the article.

10 things to know about IRS operations during the coronavirus pandemic
Even as they still have to deal with tax season, the service is tasked with handling much of the stimulus packages.

Should clients withdraw money from their retirement plan?
The CARES Act waives the 10% tax penalty for premature 401(k) withdrawals for workers facing financial troubles due to the coronavirus pandemic, according to this article in The Washington Post. Workers will also have three years to pay the income tax bill for the withdrawal and repay the distribution. The new law also eases the rules for applying for a 401(k) loan and for repaying an existing loan. Despite these changes, clients are advised to consider a 401(k) withdrawal or loan their last-resort option, the article says.

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401(k) Tax planning Coronavirus Trump tax plan Tax refunds RMDs Retirement planning IRS