July 27, 2020
It seems that since February, all of our attention has been focused on everything from the economic impact of COVID19, and market volatility, to the physical, mental and emotional implications of quarantining and social distancing. It’s truly been a unique year.
During times such as these however, we can lose sight of some basic financial fundamentals, and I thought I would angle today’s article toward some of these areas that may be impacting many of you reading this.
From the standpoint of risk management, now would be a good time for an insurance review. Many people have experienced a layoff, or a job change, or a furlough. If this hasn’t been a part of your particular situation, then maybe someone in your immediate or peripheral family has experienced employment upheaval.
If so, it would be a good idea to make sure that your benefits came with you, or are still there. Were such coverages portable? Did you think to ask if they were portable before being laid off or pursuing a different job opportunity? Does your new employer offer more substantial or less substantial limits on similar lines of coverage? Is coverage available at all through a new employer?
Believe it or not, its an easy thing to overlook. Sometimes, we have our group life insurance, group disability insurance, group health, vision, and dental insurance on a payroll deduction auto pilot and just don’t think about what a disruption of employment might mean to your risk management strategy.
On the topic of disability insurance, if you’ve experienced an employment transition, then it would be a good idea to make sure that any privately held disability insurance remains adequate in terms of coverage limits. If your income changed substantially in either direction, and especially if you had group disability benefits at a previous employer that were lost during a transition, this would be an opportune time to make sure that you remain adequately covered. This is particularly true for those with substantial expenses on the near-term horizon (college costs, weddings), or for those entering into “the mad dash toward retirement”. If anything derails your income stream at these points, it could be catastrophic.
If you’ve changed jobs recently, are you still a W2 employee or are you now a 1099 employee? This could have a huge impact on not only your taxation, but the manner by which taxes are paid. People in such positions would be well served by having a CPA review any new career moves from the standpoint of employment and taxation.
By extension, if you’re now a 1099 employee, don’t think you’re without the ability to continue deferring into a retirement plan. You may have lost the opportunity to defer into a 401(k), but you have a myriad of self-employed retirement plan options available to you that may offer substantially higher deferral ceilings.
For those making lateral moves between employers, it would be a good idea to obtain the plan summary document from the administrator of your new employer’s 401(k) plan to see if the new plan will accept transfers from the previous plan that you left behind.
Other considerations to at least review, if not address, during a time of disruption would include provisions for long term care insurance, Will and Trust planning, and for those of you later into your working careers, it would be a great time to coordinate all of this with some advance Medicare enrollment planning.
Amid all the noise of 2020, its easy to forget that we’ve also had some sweeping changes this year in the form of the SECURE Act and the CARES Act. Required Minimum Distributions were suspended for 2020 for example, and COVID19 hardship access to qualified plan balances were expanded for this year alone. Employers who would like to explore the construction of a qualified plan in 2020 can potentially benefit from a per employee tax credit for having an auto enrollment feature that was afforded under the SECURE Act.
This is a high-level overview of some of the otherwise really important things, that can fade from the radar screen during such a time as this, when COVID19 and media sensationalism are an ever-present distraction. My advice is to pause for a few minutes, and evaluate where you are and compare it to where you thought you were, or wanted to be by this point.