Searching for That Silver Lining
By Yvonne Marsh, CFP®, CPA
These uncertain times are particularly heightened for today’s retirees. Not only does the pandemic have a disproportionate impact on those 65 and older, but retirees’ financial strategies have to withstand market volatility while continuing to provide income. As most financial decisions have potential tax consequences, our clients appreciate the fact that we are not only Certified Financial Planners, but Certified Public Accountants as well. Here are some opportunities hidden within these turbulent times:
» This is a fabulous time to do a Roth conversion. Why? You can convert a bigger percentage of your traditional IRA balance at tax rates starting at only 8%. These lower tax rates are set to expire in 2025. Let’s say your goal was to convert $100,000 of your $500,000 IRA, or 20% for each of the next five years, and you’re willing to pay the tax on that $100,000 conversion. After the market correction, let’s say your account is now worth $425,000, and the $100,000 conversion now allows you to move 24% of your IRA into a Roth IRA, all while paying the same amount of tax. Then, when the markets recover, the growth on your converted IRA dollars will be happening within the tax-free Roth IRA. So you move out of the traditional IRA while the markets are down and let those dollars grow again in the tax-free Roth. A winning strategy!
» If you’re retired and subject to the Required Minimum Distribution rules, take advantage of the provisions under the new CARES Act that allow you to suspend your RMDs for 2020. This helps (1) by not requiring you to sell and withdraw assets on a market downcycle and (2) by keeping those taxable RMDs out of your 2020 reportable income. This provision applies to all types of IRAs, employer 401(k) and 403b plans, and inherited IRAs. And if you’ve already withdrawn your RMDs and want to put the money back, you can, under the 60 day rollover window rules. Write a check to your custodian for the gross RMDs you’ve received in the last 60 days and you can reset the clock. Remember though, there is only one 60 day rollover allowed per 12 month period.
» Once the daily volatility in the markets slow down and the economic fallout has been adequately quantified, it’s time to take a look at rebalancing your investment accounts. Your stock allocation has probably drifted below your risk tolerance, and it will be time to sell some of your bond allocation and replenish the stock side of your account. Regular rebalancing forces us to follow the rules of Buy Low, Sell High. Our emotions want us to do the opposite – but emotional investing strategies are not winning strategies. Stay the course and rebalance at least once a year. Whether it’s a new set of golf clubs, a nice outfit, or a mutual fund, we all love a good sale.
I understand the apprehension that results from uncertainty. As the daughter of retirees, I appreciate what so many of you are experiencing right now. I also share your concerns for the future, and our team is available to help you navigate these uncertain times. Visit our website at www.marshwealth.com, where the “Contact Us” page has multiple ways for us to communicate. We’ll help you find your silver lining.
Marsh Wealth Management, LLC
Fiduciary Registered Investment Advisors
504 Ebenezer Road
Knoxville, TN 37923