Christina Hoffmann has covered real estate and homeownership for two decades, including as REALTOR® Magazine managing editor and HouseLogic.com’s content manager, with added expertise as owner of a demanding 100-year-old house. She is currently a senior speech writer at NAR.
Take Care of Your Financial Wellness
Financial planning experts, and NAR's Center for REALTOR® Financial Wellness, offer tips on cash management and tax planning to help you through these turbulent times.
April 6, 2020
When the world around you feels like it’s spinning out of control, it’s important to control what you can. And that includes your financial plan. “The antithesis to emotional decision-making is putting systems into place,” says Mariah Hudler, a financial therapist with Koru Financial Therapy in Sacramento, Calif. “There’s power in knowing your numbers and in being critical about the decisions you make about your money.”
Closely look at monthly expenditures and profit and loss statements, she advises. What can you change? Is there an opportunity to adapt, redeploy, or get rid of expenses? What other ways could you bring in income? What opportunities does this upheaval offer?
Both Hudler and certified financial planner Mari Adam of Mercer Advisors in Boca Raton, Fla., whose clientele includes independent contractors, say this is a time to hold on to some cash. And since the IRS and the U.S. Treasury have deferred the deadline for tax payments to July 15, Adam recommends keeping that money in cash so it’s available when payment is due.
Adam also recommends investing what you can. If you don’t already have an investment vehicle, she is bullish on the solo 401(k) for independent contractors without employees. “It gives you a higher contribution limit than other plans, and it’s free to set up,” she says. The IRS even allows you to include your spouse under this plan if he or she earns income from your business.
You can opt for a traditional version of the solo plan, which is now tax-deferred, or a Roth IRA, where once you pay taxes on income, you never again pay tax on the contributions you pull out in retirement. Before the end of this year, you can contribute up to $19,500, or $26,000 if you’re over 50, to a solo. Plus, you can double down by contributing to the plan as your own “employer.” As an employer, you also can put in a profit-sharing contribution equal to 25% of your compensation. Total contributions can’t exceed $57,000 for anyone under 50 and $63,500 for those over 50 for this year.
If cash is important right now, you can have your account ready to go and fund it when you’re able to before Dec. 31. You can typically make employer profit-sharing contributions all the way until your tax-filing deadline next year. Talk to your tax preparer about your specific actions to take. “This is a great time to fund stuff,” Adam says, “because when there’s a rebound, you’ll get appreciation.” Consult a financial adviser about what’s right for you.
NAR has an entire website devoted to REALTORS®’ financial health. Visit the Center for REALTOR® Financial Wellness to access free webinars, both new and archived, to help you manage your business and finances during this turbulent time. In addition, you’ll find budgeting tools and calculators. Adam’s other insights:
- Make sure you’re in touch with the people who can guide you, like your tax preparer and financial adviser. “Even if you work part-time, you can deduct a lot of expenses that other workers can’t,” Adam says.
- “If you owe money, and you’re having trouble covering your bills, find legitimate ways to not pay,” she says. Refinance your mortgage or discuss forbearance options with your lender or mortgage servicer. Negotiate with your auto lender. Set a payment plan to cover a health expense.
- Stay plugged into state and local information about the financial relief that might be available to you.
Continue to visit nar.realtor/coronavirus for the latest information on what the federal government is doing to provide financial relief to working Americans, including independent contractors and the self-employed.