Maybe we’ll see a Christmas miracle. Maybe it’ll be a cold winter in more than one way. Most definitely, no one will be able to fully predict what happens to the global economy and markets in the coming months. The uncertainty of financial planning in a down market might be enough for some people to shy away from traditional end-of-year strategies and instead stand pat until markets recover.
However, the current market environment creates financial planning opportunities to not only protect wealth but set the stage for future growth.
Yes, even with winter’s gloom approaching.
Here are five things you might consider doing:
1. Convert Traditional IRAs to Roth IRAs.
Traditional IRAs do not eliminate tax, they defer it into the future. As the account grows, the tax liability grows, too. At some point, the IRS will be there to collect its percentage of your retirement savings, but what if you could buy out Uncle Sam’s interest in your IRA today?
Enter the Roth conversion. It doesn’t always make sense, but when markets are down, likely deflating an IRA’s value, it’s an advantageous time to convert a traditional IRA to a Roth IRA — because of the reduced tax hit to do so — and then enjoy capturing tax-free earnings when the market rebounds.
Additionally, there are new regulations that make inheriting traditional IRAs less advantageous because they will force faster withdrawals from the account than was required in the past. The SECURE Act changed the previous rule to say beneficiaries have 10 years to withdraw funds from an inherited IRA, but the new regulations further clarify that if the IRA’s original owner was already taking required minimum distributions (RMDs), the inheritor must continue taking the RMDs before completely taking out the money by the tenth year of ownership.
By converting that traditional IRA to a Roth, the account owner would not be required to take RMDs — and neither would the inheritors, as long as the money is removed by the tenth year.
A couple of final points on IRAs:
- You don’t have to convert all of an IRA at once. You can do as much or as little as you want — whichever makes the most sense for your current situation. The key consideration here is what level of tax you will pay on the conversion.
- IRA contributions do not have to be maxed out in a calendar year. You have until April 15 to …….