by Greg Berg, CFA, CAIA, MBA, Senior Vice President & Senior Portfolio Manager INVESTMENT OUTLOOK Global stock markets continued to appreciate…
On November 13, 1789, Benjamin Franklin wrote, “Our new Constitution is now established, everything seems to promise it will be durable; but, in this world, nothing is certain except death and taxes.”
The final part of Benjamin Franklin’s quote above is recognized by most U.S. citizens. In 2020, due to the pandemic, economic volatility, and tax law changes, death and taxes have been on the minds of many. Presidential and other key elections have also been hot topics this year. Franklin’s quote was written when there had only been one presidential election, yet he found promise in the durability of the new Constitution. Our 2020 elections might cause some to pause and question that durability, but our Constitution has guided our nation for 231 years through crisis after crisis and the ups and downs of economic and political cycles. Let’s count on it to continue to endure.
When uncertainty is all around, proactive steps you take help mitigate your personal financial risk and the uncertainties of life and the certainty of death and taxes. Below are a few action items for you to do or consider.
We have the right to do so and some consider it an obligation. Vote for what is important to you.
PLAN FOR YOUR DEMISE OR AN ILLNESS.
Death is certain. Plan for it. If you don’t have an up-to-date will, trust, and powers of attorney for your health and financial needs, contact an attorney and get your documents in place now! Dying unexpectedly without updated legal documents may mean your assets will not go to your intended beneficiaries. Falling ill with no one to speak for you when you cannot speak for yourself, means a court may decide your fate. Death is certain but decisions surrounding your health and wellness do not have to be up to chance. Health insurance is essential too. If you lost coverage, research what may be available to you. Insurance may avert a medical-financial crisis.
REVIEW YOUR INVESTMENT STRATEGY & FINANCIAL RESOURCES.
Sit down and analyze your financial plan and resources. Does the investment objective you have still fit your situation? Don’t overreact to short term volatility and abandon your long term financial plan unnecessarily. Some adjustments may be advisable but a good plan is built to bear the ups and downs of the market over time. Modifying your allocation and increasing your cash reserve, does not have to upend your entire plan. Don’t move to 100% cash. Historically, this has been a nonproductive strategy. If you have never gone through the financial planning process to test the durability of your personal resources and analyze your needs, wants and wishes, maybe the time to do so is now.
Review these additional strategies and, if applicable to your situation, consider making changes before year end:
HARVEST GAINS AND LOSSES.
Has the market resulted in capital gains or losses in your portfolio? Offsetting gains against losses might save taxes for 2020.
REVIEW YOUR REQUIRED MINIMUM DISTRIBUTION (RMD):
The Secure Act waived the requirement to take your 2020 RMD. If you delayed your RMD, was that the right choice for you? If your income is lower than expected this year, your tax rate might also be lower and it may be beneficial to take your RMD even if not required. It might also be a good way to increase your cash.
OTHER STRATEGIES TO CONSIDER:
- Review your beneficiary designations on retirement plans, annuities and life insurance. Getting those right will mean a lot to your intended heirs and might help them pay less tax.
- Convert your IRA to a Roth IRA to help protect your retirement resources from potentially higher future tax rates. Note: Roth conversions have current tax year consequences!
- Make charitable gifts using appreciated stocks, ETFs or mutual funds instead of cash. Or, if you are eligible, an IRA Qualified Charitable Distribution (QCD) may be the best choice as you won’t pay tax on the donated QCD donation. Be sure to check the rules first.
- If your Trust has a see-through retirement plan provision, revisit that decision as the Secure Act’s new distribution rules require non-spousal inherited IRAs be paid out over 10 years.
Death and Taxes are certain. Uncertainty is most certainly a part of our financial lives. Rules change, you change, and your life changes. Don’t be static when everything in our complex world is changing around you. Ask your Central Trust Company wealth management professional for advice about what strategies may help you meet your goals!