Early 2020 will likely go down in history as a time of worldwide illness, panic, and in some cases, financial devastation. It took just over a month for the Dow Jones Industrial Average to fall from its high of over 29,500 to 18,213, primarily driven by the economic impact of the corona virus COVID-19 pandemic. This, in turn, led to the enacting of a government stimulus package, as well as the CARES Act legislation to help provide consumers with at least some form of financial relief. But while these “solutions” might sound initially sound enticing, they could actually be much more beneficial to Uncle Sam.
The Coronavirus Aid, Relief and Economic Security Act – more commonly referred to as the CARES Act – was signed into law by President Donald Trump on March 27, 2020, for the purpose of stimulating the U.S. economy, and to provide relief for both individuals and businesses that have been negatively impacted by the coronavirus crisis.
But, while this legislation may at first glance appear to be well intentioned, a closer look could indicate an entirely different story. Which brings to mind an important question: Will the CARES Act actually help or hinder investors and retirees going forward?
There are several key components of the CARES Act that are aimed at both consumers and businesses. The consumer-related highlights of this legislation include:
While the CARES Act may at first appear to provide some much-needed financial relief for investors, there are some provisions of this legislation that require a second look, as they may or may not necessarily be in the best interest of individual investors. In fact, in some cases, Uncle Sam may actually reap more of the benefit.
Take, for instance, the temporary suspension of required minimum deductions (RMDs) from traditional IRAs and retirement plans. While keeping money in a traditional IRA and/or retirement account can certainly allow it to continue growing, you will still owe tax when you eventually take your withdrawal(s) – and if there is more money in the account, you could end up handing over a larger amount of tax to Uncle Sam.
More money in the account can also lead to a larger dollar amount of the required minimum distribution – which in turn, can also end up costing you more in taxes. Given that, it is important to keep in mind that deferring taxes does not mean that taxes won’t ever be due, but rather that they are just simply being delayed. And, depending on when the time for taxation comes, it is possible that you could be in a higher tax bracket, too.
Many retirees and investors have seen vast changes in their portfolios due to the coronavirus outbreak – and for those who are invested in equities, the volatility of the stock market has likely led to a reduced value, as well as the need to make some revisions in your plan going forward.
Because such changes can oftentimes be complex, it is essential to consider how various moves could impact your overall planning strategies. This includes your tax liability. Working with a retirement income specialist can help to get – and keep – you on track with your current and future financial goals.
An Alliance America financial advisor can assist you in maximizing your retirement resources and help achieve your retirement goals. Alliance America’s planning process is focused on personalized retirement income planning. As fiduciaries, our advisors are required to act in your best interest, and we are dedicated to helping you achieve the retirement lifestyle you seek. You can request a no-obligation consultation by calling 888-864-2542 today.