(Tuesday March 3, 2020, 7:30 p.m. ET) — (FINANCIAL ADVISOR NEWS SERVICE) The human toll of Covid-19, in sickness, suffering, and death is incalculable. Preliminarily, CNN's Dr. Sanjay Gupta says Covid-19 transmission rate is about the same as the common flu but 20 times more likely to be fatal. The ultimate toll remains unimaginable.
A harsh truth, however, for millions of Americans, is that the stock market plunge presents a tax and financial planning opportunity. Here's a short list of situations in which you want to consider proactive tax planning after last week's 11.5% loss in stock prices.
Next-Gen Strategy. If you have beneficiaries other than a spouse, converting traditional IRA or 401 (k) assets to a Roth IRA suddenly became a serious consideration, on January 1, 2020. That's when The SECURE Act (Setting Every Community Up for Retirement Enhancement Act of 2019) became effective. SECURE Act made Roth conversions advantageous to many more Americans. Converting to a Roth can be a way to manage your tax bracket, to reduce taxes owed on converting to a Roth IRA. Unlike a traditional IRA, income from a Roth account is not taxed under federal law. While you must pay income tax on the amount you convert from an IRA or 401(k) to a tax-free Roth account, your beneficiaries will benefit.
Wealth Transfers. For individuals with taxable estates, low interest rates make it smart to consider the use of specially designed trusts, such as a:
- Grantor Retained Annuity Trust (GRAT)
- Intentionally Defective Grantor Trust (IDGT)
- Generation Skipping Trust (GST)
Estates In Administration
If you are a beneficiary of an estate in the administrative process of distributing assets, the change in asset values may have created a tax-loss harvesting opportunity. In addition, the lower asset values make it prudent for spousal beneficiaries of a qualified retirement account under administration to evaluate a partial or complete disclaimer.
Covid-19's ultimate price is unimaginable, but the correction it's caused in the stock market clearly spawned new strategic tax planning opportunities for individuals in situations described above. Tax advice in these situations requires knowing your personal situation. If you have a question about your personal situation, please contact us.
Nothing contained herein is to be considered a solicitation, research material, an investment recommendation or advice of any kind., and it is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. The material represents an assessment of financial, economic and tax law at a specific point in time and is not a guarantee of future results.
Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied.