October 29, 2020

4 Financial Opportunities That Arose from COVID-19, Ep #17

19 minutes

How can you turn a challenge like a pandemic into an opportunity? How do you thrive in this kind of environment? In this episode of Retirement Made Easy, I share 4 financial opportunities that arose because of the Coronavirus pandemic. It hasn’t been an easy time for anyone but taking advantage of these opportunities could potentially help your financial situation. Learn more by listening!

You will want to hear this episode if you are interested in...

[0:22] The 4 opportunities arising from the Coronavirus pandemic
[1:57] Opportunity #1: the drop in interest rates
[5:35] Opportunity #2: A lower tax-rate
[8:32] Opportunity #3: The CARES Act
[11:41] Opportunity #4: Investment Opportunities
[16:29] A great resource for listeners

Opportunity #1: the drop in interest rates

In March 2020 the federal reserve announced an emergency decrease to the federal funds rate. After that, banks started decreasing interest rates. Mortgage lenders dropped their rates drastically. Unfortunately, your money markets and CDs are getting next to nothing in interest. However, millions of Americans are refinancing existing home loans to take advantage of historic low interest rates.

I personally refinanced to a 15-year mortgage in the low 2% range. I saved $250 a month on my payment. They’re looking more at credit score than they have in the past (if your credit score is 720 or higher). My mortgage lender got someone a 15-year refinance of 1.95%. Incredible. It’s a great time to refinance your debt.

Opportunity #2: A lower tax rate

Those who were laid off or furloughed are finding themselves in a lower tax environment in 2020 (because they didn’t have regular earnings). If you're someone who would normally make $100,000 and was furloughed for 6 months, you only have $50,000 of household income. If you’re in that position, you could consider converting part of your retirement account(s) to a Roth IRA. You’d be paying the taxes now in a lower tax environment. You only convert up to the exact dollar amount you need to stay in a lower tax bracket (i.e. 12%). Don’t convert a dollar more.

Opportunity #3: The CARES Act

One of the provisions in the CARES Act allows you to—if you have to take a required minimum distribution from your 401k or IRA—skip that required minimum distribution. Plus, you won’t have to pay taxes on it. It might put you in a lower tax bracket. You can take advantage of this to harvest some gains in your portfolio or do a Roth conversion (it doesn’t count toward your RMD).

It also allows those directly impacted by COVID-19 to take a distribution from your IRA—up to $100,000. If you take advantage of that, you can stretch the tax burden out over 3 years. (i.e. you pay the taxes on the $100,00 over three years, even though the money was received in 2020). Check with your financial planner to see if this is something that could work for your situation.

Opportunity #4: Invest when possible

The market declined in the month of March and bottomed out on March 23rd. The S&P 500 was down 31% from January 1st, 2020. The Dow Jones was down 35%. But the market has recovered. But the opportunity was available for anyone to add to their investments during the low. If you buy-in to an investment that follows the stock market and it’s undervalued, you’re getting a steep discount.

You like buying your groceries and clothing while they’re on sale—why not your investments? You can't time the market. We don’t know when the next pandemic is coming. But if you’re contributing consistently, you can purchase into investments, while they’re fluctuating in price and discounts are to be had. Where there are challenges, there are opportunities.

Resources & People Mentioned