It is officially the holiday season, and with the beginning of winter celebrations also comes the beginning of the end for the volatile 2020. While typically this time of year for investors consists of a little portfolio housekeeping and attempts to reduce tax burdens, the legislation passed by Congress to help the economy rebound from the COVID-19 pandemic has created unique, one-time opportunities for investors. Yahoo! recently spoke with Terry Sawchuk, the founder and chairman of Sawchuk Wealth, for insight on these opportunities all investors should consider before the year ends.
One year-end money move Sawchuk recommends is for investors to review their required minimum distribution (RMD). Through the Coronavirus Aid, Relief and Economic Security (CARES) Act, retirees are allowed to forgo taking their RMDs from qualified plans this year. However, just because retirees can waive them, it does not mean that they should, especially since the stock indexes have rebounded.
“The ability to skip RMDs can be very attractive,” says Sawchuk. “I actually think it’s not the year to skip RMDs. We’re really unclear as to what the future holds, but what I do know is that the tax rates are very low, and people should take advantage of that.”
For retirees considering skipping RMDs because they do not need the income, Sawchuk recommends opening a Roth individual account and investing the money there instead. This process enables investors to take advantage of low tax rates, which are set to expire in 2025, while also converting the capital into investments where their gains grow tax-free.
Another way for investors to take advantage of the current environment is by investing monetary gifts into life insurance policies for beneficiaries. While parents can give monetary gifts to their children of up to $15,000 a year without paying taxes, these funds can instead buy a life insurance policy, which, according to Sawchuk, has “astronomical leverage” to earn money.
“There’s almost no way you could take $15,000, invest it each year, and get anywhere near where you could get with a life insurance policy, particularly with zero risk,” he explains.