Apr 3, 2020 4 min read

Everyone in the country is dealing with the coronavirus. It has killed or sickened hundreds of thousands of people. It has crashed the stock market more than 30% and caused U.S. unemployment to rise from its lowest percentage in 50 years to possibly the highest.

Everyone has to help by social distancing, remaining at home and washing their hands numerous times every day. The government is attacking the problems with a war-time mentality.

Last week, Congress passed and President Donald Trump signed the CARES Act, which will provide direct cash payments to many Americans, up to $1,200 per adult and $500 for each child. There are income requirements that must be met to receive the payments, which are expected to begin in a couple of weeks.

The idea is to help make up for some of the income lost due to forced business closures to slow the spread of the virus. These funds will be received income tax-free.

Many creditors are allowing longer grace periods to make payments if you are experiencing a cash squeeze. The Federal Housing Administration has imposed a 60-day foreclosure and eviction moratorium on single-family homes. The CARES Act suspends federal student loan payment through Sept. 30.

If you are having trouble paying bills, reach out to creditors to find out what help may be available.

There has been a change in tax laws for required minimum distributions. If your RMDs are not part of a defined benefit plan, you can skip them in 2020. RMDs are the amount that people were required to take out at age 72 under the Secure Act, and at 70 ½ if you are under the old law. You can always take more out if you need the cash. Money taken out is taxed as ordinary income.

If you have already taken money out this year from an Individual Retirement Account and don’t need it, you may be able to put it back. There are two ways this may happen. Talk to your tax professional. If your IRA was invested in the market, this will keep you from locking in your market losses.

It may be a good time to consider a Roth conversion. This is when you pay taxes now on your qualified money and convert it to a Roth. If you have a Roth for at least five years and are over age 59 ½, you do not need to pay taxes on the growth.

If you believe the market will rebound, why not consider the Roth so you do not need to pay taxes on future gains? The Trump tax cut is scheduled to end Jan. 1, 2026, and rates will most likely go up.

With all of the current government spending, the deficit is growing very quickly. Tax rates will have to go up. This could make a conversion a good consideration.

The CARES Act allows tax relief from IRAs for coronavirus-related distributions up to $100,000 taken between Jan. 1 and Dec. 31 this year. This exempts the 10% early withdrawal penalty. The law allows the taxes to be paid over three years and the money can be re-contributed during these three years.

This provision could prove to be very dangerous to your retirement and most people should not do this.

First, most people do not save enough for retirement now. Why try to solve a short-term problem with an answer that could affect many years of retirement?

Many people will think they are going to re-contribute and may not be able to do so financially. You will not be earning on these funds while they are outside of your account.

If they would have been invested in the stock market, much of the upturn usually happens early in a recovery. You will miss this big possible gain. Most people should not do this, but the ones who do are probably less financial savvy.

We will get through this over the next month or so if people act responsibly. Testing is getting better, progress is being made on medical issues and grocery stores are being restocked.

None of us has experienced anything like this, but we will get through it if we all work together.

Gary Boatman is a Monessen-based certified financial planner and the author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

To submit columns on financial planning or investing, email Rick Shrum at rshrum@observer-reporter.com.