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Financial Planning Opportunities in Challenging Markets

| April 06, 2020

With Q1 now behind us – at least in calendar terms, it might take longer psychologically – we thought it might be a good chance to take a collective deep breath and look at the opportunities presented by the turmoil that existed over the past few weeks. It’s crazy to think that the markets were hitting all-time highs just six weeks ago, and that we’ve since entered a bear market and a subsequent bull market (at least on the Dow). This level of turmoil can easily leave us feeling helpless. Thankfully, if we take a step back, we can see that this downturn actually presents us with some financial planning opportunities that we can leverage to improve your financial picture over the long-term, in some cases quite dramatically. In an environment fraught with so much uncertainty and lack of control, these are certain things that we can control. Without further ado, here are some ideas. We’ll touch briefly on each and invite your questions if any of these piques your interest. We have great resources that can help you dive deeper into each topic.


Converting pre-tax (Traditional) retirement dollars to after-tax (Roth) can be a powerful planning tool, both for your lifetime and for your estate – especially in light of recent changes from the SECURE Act. This move can significantly reduce taxes and increase flexibility. We are currently in a low tax rate environment, and this is likely to change – especially as we continue to pour more money into dealing with this COVID-19 challenge and thus elevate the federal debt to unprecedented numbers. With IRA account balances down, in some cases significantly, you can use this opportunity to execute a Roth conversion in a much more tax-friendly manner. For example, you could convert a greater percentage of your account at the same tax cost as you would have incurred on a much smaller percentage just weeks ago, or you could convert the same percentage as previously planned and pay a much lower tax bill doing so. Here are these two examples illustrated:

In addition, this strategy got even more attractive with the passage of the CARES Act (the stimulus bill), as that bill eliminated the requirement for IRA owners to take their RMD (req’d minimum distribution) in 2020. Instead of incurring taxes on your RMD, you can choose to convert an amount equal to your RMD and have no change in your tax bill this year – while saving in future years.

There are many important tax and planning considerations that must be carefully weighed before deciding to execute this strategy, especially since any conversions can no longer be undone.  Reach out to us and/or your tax professional to talk through the details and determine if this strategy is suitable for you.


Piggybacking on the Roth conversion idea is the idea that small business owners, many of whom are likely have very difficult years financially in 2020, can take advantage of a Net Operating Loss (NOL) to convert pre-tax retirement funds to after-tax (Roth). Using this offset can dramatically reduce the taxes normally due on a Roth conversion. Certain rules do apply (many of which were updated with the 2017 tax reform, and some of which were changed again with the CARES Act), so please consult with us and/or your tax professional before executing such a move.


If you have a taxable investment account (non-retirement), you are likely sitting on some unrealized losses as a result of this recent downturn. Selectively harvesting these losses can provide meaningful tax savings, both this year and possibly in future years. You can use losses to offset against gains you have been hesitant to take for tax reasons, or you can accumulate losses that can be used to offset ordinary income tax liabilities this year (up to $3,000) and future capital gains by carrying these losses forward. Strict rules do apply, and we also caution against letting the “tax tail wag the investment dog.” However, by carefully navigating these “wash sale” rules and strategizing about how to remain in the market with exposures that make sense for you, you can use this opportunity to sensibly rebalance your portfolio and minimize tax obligations.


Refinancing mortgage debt got a lot of attention as this crisis first reared its head. Mortgage rates plummeted in the early days. However, they have since bounced higher, giving many borrowers pause on their efforts to refi. That said, we do expect rates to drop as the dust settles and supply and demand imbalances correct, meaning another window for refinancing could open up with rates at very attractive levels compared to where most property owners are sitting now. We have already helped numerous clients think through refinancing strategies to lower their monthly costs, lower total interest paid, and/or shorten the length of their loan. In addition, if you have an ARM (Adjustable Rate Mortgage) you may soon have a great opportunity to convert this to a historically low fixed rate. Lastly, if you have an outstanding balance on a HELOC, you may consider rolling this into a refinanced mortgage to lock in a low rate and amortize it over the course of your new loan.


This one is certainly not going to apply to most of you, but for those it does, it can be powerful long-term tax savings tool based on the Net Realized Appreciation (NUA) rule. We’ll spare you the details, and instead say this – if you own company stock within your 401(k) and that stock is now trading at a price significantly lower than what you paid for it within that account, please reach out to us and we’ll walk you through how this strategy works for you.


For those of you with asset levels that will trigger estate taxation at either the state or federal level, now can be a very opportune time to consider both simple and complex gifting strategies to reduce or eliminate any potential estate taxation. The combination of depressed asset values and ultra-low interest rates opens up a variety of gifting techniques for consideration, whether they are to your heirs or to charitable organizations dear to your heart. We will be glad to work with you and your estate attorney to strategize on methodologies that make sense for you.


In the unfortunate case that a loved one whose estate was subject to taxation died in the last six months, this downturn in asset valuations can have a meaningfully positive impact on estate taxes due.  By using the alternative valuation date, which is six months after the date of death, you can potentially lower the estate taxes owed thanks to the likely decrease in asset values over the past few months. Please note that there are also potential disadvantages to using this, so please consult with your estate attorney before making this irrevocable decision. It is important to note that if the estate was non-taxable (which is very often the case), it very rarely (if ever) makes sense to opt for lowering estate valuations, as this disadvantages those that inherited property with a step-up in cost basis. 


For those of you holding stock options, the current environment may be an opportune time to exercise those options, assuming of course that they are still “in the money.” For non-qualified stock options (most common form for our clients), the bargain element is taxable as W2 wages in the year of exercise. This means that by exercising the option at a lower strike price, you can significantly reduce taxation of these valuable assets. If you hold Incentive Stock Options (ISO), which are normally reserved for executives, the current environment offers you the opportunity to exercise many or all of your options with a much lower chance of triggering AMT (Alternative Minimum Tax).

We hope you have found this to be a helpful starting point. For those of you who are fully engaged with us in the planning process, we are already actively thinking about or implementing many of these strategies with and for you, oftentimes in concert with your tax and legal professionals. For those who would like to take a deeper dive into the planning process, please do not hesitate to reach out. After all, sticking to a plan is a lot easier if you have one to start with!

Finally, we have developed some additional resources that might be of value to you.  Please see the hyperlinks below, and please don't hesitate to reach out to learn more about anything you read.