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Over the last 8 weeks the world has changed.\u00a0\u00a0 The exact changes are not yet known but certain probabilities\u00a0<\/span>that impact long-term financial planning\u00a0<\/span>have shifted<\/span>.\u00a0\u00a0\u00a0<\/span>We believe these changes have made\u00a0<\/span>ROTH conversions\u00a0<\/span>a more important strategy than ever for\u00a0<\/span>youn<\/span>g savers looking to reduce their\u00a0<\/span>future tax burden and for older savers looking to maximize wealth transfers to\u00a0<\/span>their kids.<\/span><\/p>\n <\/p>\n 1. Asset prices are down<\/span><\/b>\u00a0<\/span><\/p>\n Converting IRA investments to a ROTH IRA when asset prices are down\u00a0<\/span>allows you to minimize the amount\u00a0<\/span>taxed at conversion time and allows the investment<\/span>\u00a0gains from the rebound to be\u00a0<\/span>housed in the tax-free ROTH IRA.\u00a0\u00a0<\/span>\u00a0<\/span><\/p>\n As an investor you are well aware\u00a0<\/span>that stock prices fell swiftly from the end of February to late March and while they have rallied since<\/span>,<\/span>\u00a0<\/span>t<\/span>he S&P 500 is\u00a0<\/span>still\u00a0<\/span>down\u00a0<\/span>more than<\/span>\u00a0<\/span>10%<\/span>\u00a0YTD<\/span>\u00a0<\/span>as of the end of April.\u00a0 Further, it<\/span>\u00a0i<\/span>s likely your<\/span>\u00a0IRA was diversified and include<\/span>s\u00a0<\/span>other types of investments\u00a0<\/span>like small-cap stocks,\u00a0<\/span>international stocks and REITS\u00a0<\/span>that\u00a0<\/span>are down more than\u00a0<\/span>large-cap US stocks.\u00a0\u00a0 Rather than abandoning these positions\u00a0<\/span>altogether you can sell them in your traditional IRA, convert the cash to a ROTH IRA and then buy them back in the ROTH IRA.\u00a0\u00a0\u00a0<\/span>\u00a0<\/span>Sheltering all eventual appreciation from future taxes.<\/span>\u00a0<\/span><\/p>\n <\/p>\n 2. Income may be down<\/span><\/b>\u00a0<\/span><\/p>\n Unfortunately, many people will likely\u00a0<\/span>experience a reduc<\/span>ed amount of\u00a0<\/span>in<\/span>come\u00a0<\/span>in\u00a0<\/span>2020 w<\/span>hich means you may end up in a lower tax bracket<\/span>.\u00a0\u00a0\u00a0<\/span>The amount of assets you transfer from your Traditional IRA to a ROTH IRA\u00a0<\/span>is treated as<\/span>\u00a0taxable income in the year that you make the\u00a0<\/span>c<\/span>onversion.<\/span>\u00a0 E<\/span>ven if you are fortunate\u00a0<\/span>e<\/span>nough not be laid-off or furloughed, you\u00a0<\/span>or your spouse<\/span>\u00a0<\/span>may<\/span>\u00a0<\/span>experience\u00a0<\/span>a reduction in<\/span>\u00a0hours,<\/span>\u00a0<\/span>bonuses\u00a0<\/span>or<\/span>\u00a0<\/span>c<\/span>ommissions<\/span>\u00a0and<\/span>\u00a0<\/span>b<\/span>usiness<\/span>\u00a0owners<\/span>\u00a0may see<\/span>\u00a0<\/span>less profits or even losses.\u00a0<\/span>\u00a0\u00a0<\/span>The silver\u00a0<\/span>lining\u00a0<\/span>for those looking for long-term tax savings\u00a0<\/span>is that the tax on the conversion may b<\/span>e lower.<\/span>\u00a0<\/span><\/p>\n <\/p>\n 3. <\/strong>No Required Minimum Distributions (RMDs)\u00a0\u00a0<\/strong><\/p>\n Another cohort\u00a0<\/span>that\u00a0<\/span>may<\/span>\u00a0see less income in 2020 are those over age 70.5 who in typical years are required to take distributions\u00a0<\/span>from their Traditional IRAs<\/span>\u00a0whether they want the income or not.<\/span>\u00a0\u00a0\u00a0<\/span>The IRS has waived\u00a0<\/span>RMD<\/span>\u00a0requirements\u00a0<\/span>for\u00a0<\/span>2020<\/span><\/a>;<\/span>\u00a0<\/span>which opens the window of doing a ROTH conversion for the amount that you would have taken as an RMD and being in the same tax position as you would have been in\u00a0<\/span>had the RMD\u2019s not been waived.\u00a0\u00a0 The\u00a0<\/span>benefit of the conversion vs. the RMD is that the money can find\u00a0<\/span>it\u2019s<\/span>\u00a0way into a tax-free ROTH IRA for use later in your life or for\u00a0<\/span>a more efficient transfer of wealth to kids and grandkids.\u00a0 For more on that keep reading.<\/span><\/p>\n <\/p>\n 4. <\/strong>2017 Tax Cuts (TCJA)\u00a0are\u00a0still in effect\u00a0<\/strong><\/p>\n To combat the economic damage of the Covid<\/span>-19 pandemic the government has\u00a0<\/span>thus far\u00a0<\/span>spent over an estimated amount of $6T<\/span>\u00a0compounding a budget deficit that was already at record levels<\/span>\u00a0and increasing the probability that we will see a higher<\/span>–<\/span>taxes in the future.\u00a0\u00a0 The 20<\/span>17 tax cuts are due to sunset or expire after\u00a0<\/span>2025 at which point the tax rates will\u00a0<\/span>revert back<\/span>\u00a0to pre-2<\/span>0<\/span>17 levels<\/span>.\u00a0\u00a0 T<\/span>he probability has now increased that Congress will\u00a0<\/span>allow the cuts to expire or\u00a0<\/span>re-write the tax code in 2025 in a way that raises more revenue- either way the result is likely to be higher taxes<\/span>\u00a0especially for higher income and wealthier households.<\/span><\/p>\n <\/p>\n 5. SECURE Act<\/span><\/b>\u00a0complicated the inheritance of\u00a0<\/span><\/b>Traditional IRAs\u00a0<\/span><\/b>\u00a0<\/span><\/p>\n In December<\/span>, the SECURE Act was introduced<\/a> which made major changes to the retirement plan landscape<\/span>.\u00a0\u00a0<\/span>The\u00a0<\/span>Secure Act did away with beneficiaries of IRA\u2019s being able to stretch the RMD\u2019s over their lifetime and now requires that the entire amount of the inherited IRA be withdrawn within 10 years from the date of inheritance.\u00a0\u00a0\u00a0<\/span>\u00a0<\/span><\/p>\n Notably,\u00a0<\/span>this provision applies to non-spouse<\/span>\u00a0beneficiaries\u00a0<\/span>(<\/span>most frequently the original IRA owner<\/span>\u2019s\u00a0<\/span>children)<\/span>\u00a0which c<\/span>reates the potential for a significant loss of wealth during\u00a0<\/span>the<\/span>\u00a0generational transfer<\/span>\u00a0and a potential tax bur<\/span>den to the kids.\u00a0\u00a0<\/span>Often\u00a0<\/span>times<\/span>\u00a0the\u00a0<\/span>next generation beneficiary is<\/span>\u00a0in their peak income earning years therefore they often do not have a need for the inherited funds<\/span>\u00a0and are i<\/span>n a high tax bracket<\/span>.\u00a0\u00a0<\/span>\u00a0While i<\/span>nherited ROTH IRAs still must be withdrawn within 10 years the withdrawals will not be taxable improving wealth transfer<\/span>\u00a0and\u00a0<\/span>not complicating the beneficiaries tax planning.<\/span>\u00a0<\/span><\/p>\n If you believe your income or your beneficiaries income will higher in the future; if you believe tax rates are likely to be higher in the future and if you are motivated to maximize your wealth transfer plan then 2020 is the time to take a closer look at a ROTH conversion.<\/span><\/p>\n <\/p>\n <\/p>\n Written by \u2013 Chris Thomas, CFP\u00ae, AIF\u00ae, CPFA<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Over the last 8 weeks the world has changed.\u00a0\u00a0 The exact changes are not yet known but certain probabilities\u00a0that impact long-term financial planning\u00a0have shifted.\u00a0\u00a0\u00a0We believe these changes have made\u00a0ROTH conversions\u00a0a more important strategy than ever for\u00a0young savers looking to reduce their\u00a0future tax burden and for older savers looking to maximize wealth transfers to\u00a0their kids…. Read more »<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[43,62,41,36,35],"tags":[68,67,46,37,39],"_links":{"self":[{"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/posts\/337"}],"collection":[{"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/comments?post=337"}],"version-history":[{"count":8,"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/posts\/337\/revisions"}],"predecessor-version":[{"id":346,"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/posts\/337\/revisions\/346"}],"wp:attachment":[{"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/media?parent=337"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/categories?post=337"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/tags?post=337"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}