Hidden Value: Tax Opportunities Created by Market Downturn

This week in his Hidden Value column for ThinkAdvisor, Joe Elsasser, CFP^®, talks about how the recent market downturn and the new CARES Act have created some unique financial planning opportunities.

For instance, now is a great time to consider harvesting losses. Tax loss harvesting can be very beneficial for a couple of reasons. The loss from the sales can be used to offset future gains, and a small portion of the loss can offset ordinary income. Additionally, tax-loss harvesting can help get a “stuck position” unstuck. 

Advisors should also consider Roth conversions to reduce the overall lifetime tax liability.

"If a client’s IRA is likely to be overfunded, even in the presence of a correction or bear market, then pushing funds from the IRA into the Roth and paying taxes now, particularly at the current historically low tax rates, allows any recovery to occur tax-free and to be passed to beneficiaries at the client’s death tax-free as well," said Elsasser. 

There are also specific opportunities to consider with the passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act. For instance, IRA owners who would otherwise be subject to required minimum distributions (RMDs) can forego making those distributions in 2020 thanks to the new legislation. 

"Regardless of the techniques you employ in your practice, market declines should be about much more than simply reassuring clients and telling them to sit tight and wait for the market to recover. Instead, they should be viewed as opportunities to stick to your investment strategy, while looking for financial planning opportunities that only occur once every several years," said Elsasser. 

Read the ThinkAdvisor article in its entirety.

Use Tax Clarity^® to Identify Opportunities for Roth Conversions 

Tax Clarity can help you identify opportunities for Roth conversions by calculating your clients' effective marginal tax rate and identifying dangerous points where just one additional dollar of income can push them into much higher effective marginal tax rates. 

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