As the effects of the spread of coronavirus continue to impact the economy, you might be experiencing some anxiety about your retirement savings and other investments. Here are the answers to some frequently asked questions about how the coronavirus may affect your savings and what you can do to protect yourself.
Can I take any money out of my accounts if I have an emergency?
If you’re younger than 59-and-a-half, the 10% early withdrawal penalty for accessing defined contribution plans like 401(k)s is being waived. In order to make a withdrawal from one of these plans, you need to experience a coronavirus-related hardship like job loss or COVID-19 illness. The penalty waiver applies to withdrawals of up to $100,000.
Is this a good time to make big financial decisions?
You’re understandably worried about your financial future, however, experts note, avoid making any financial decision if you’re emotionally upset or are in a panic. Before making any decisions, take some time to calm yourself and get your rational brain in control. Do this by taking 20 minutes to take some deep breaths or repeat a phrase like, “I am calm” or “relax.” Because of the volatile nature of the financial environment, experts recommend seeking the advice of a professional before making any decisions.
Should I sell my stocks?
Like the previous question, it’s not a good idea to make decisions about your stocks while you’re in a panic. Experts note that dumping stocks after a market loss locks in your losses and eliminates your chances of recovering when the market improves. If you have a financial adviser, now is the time to see their advice about stock selling and rebalancing your portfolio.
Can I deduct my losses from my 2020 income taxes?
You can if you sold your investments in a taxable account that you sold at a loss. However, you can’t deduct any losses you incurred in your tax-favored retirement plans like an IRA or 401(k).
According to AARP: “If you have more losses than gains, you can deduct up to $3,000 of those losses from your income on your 2020 tax return. And if you still have losses, you can carry them forward to the 2021 tax year. For more information, see IRS Topic 409, which covers capital gains and losses. (irs.gov/taxtopics/tc409).”
Do I still need to take required minimum distributions (RMD) in 2020?
No. Under the recently passed Coronavirus Aid, Relief and Economic Security (CARES) Act, you’re not required to take distributions from retirement accounts for 2020 by Dec. 31. You’re also not required to take your first RMDs if you were required to do so in 2019 and haven’t done so yet.
Can I still make retirement contributions?
Yes. The deadline to make prior-year contributions to IRAs or 401(k)s is tax day April 15, however the IRS moved tax day to July 15, which means you have an extra three months to make contributions.