Roths and Market Volatility – a chance to convert on dips

We have written before on the advantages of a Roth IRA over the standard IRA and discussed strategies for converting IRAs to Roth IRAs.

One possible good side to market volatility is that with the swings in the value of stocks and mutual funds, you can try to convert an IRA to a Roth IRA at a low point, with the cash invested in a similar way so when the market returns, your portfolio swings back up while the taxable income at the time of conversion is lower. 

If it works, the tax cost of converting will be less. 

When reinvesting, you need to be aware of the wash sale rule, which is designed to prevent creating artificial losses for tax purposes without actually changing your investment position.  That is, it prevents realizing losses if you buy back the same or similar securities within 30 days. 

Why would that apply to IRAs?  If you only sell inside the IRA, it doesn’t. 

However, if you sell in a taxable account, and then buy the same or similar securities within 30 days inside an IRA, the IRS disallows the loss permanently (if it were in a taxable account, the loss would just be delayed). 

Let me know if you have any success with Roth conversions!

Steven

Coronavirus – concerns for your health and finances

This is my busy time, working long hours preparing income tax returns, but I wanted to respond to your concerns.

News of the coronavirus spread and its impact on the economy and stock markets is constant.

People ask: “can I get the virus from a package delivered to me from China” (the answer via the CDC is “no”).

As some say, it’s not “if” but “when” in terms of you being in contact.  That is upsetting.

At that same time, experts ask us all not to panic.  And financial people urge us to stay the course.

If you do not already have a plan, here is a good overview with links to CDC posts on making a plan with your family – NY Times prepare for coronavirus

As for the stock market, here is a good NY Times piece discussing the rationale for sticking to your long-term investment plan:  The Market Is Moving. Most People Should Sit Still.

Here is a more sobering assessment:  It’s a ‘Swimming Naked’ Moment: The Financial System Has a Real Test

In the end, if you developed a good long-term investment strategy, staying the course should be the best response as it was in the 2008 financial crisis.

Let me know if you want to talk and I hope you and your family stay healthy!

  • Steven