While the recent stock market has undoubtedly challenged client nerves, it can present attractive financial planning opportunities for certain savvy clients. Consider the following:

  1. Converting to a Roth IRA
    With many IRA account values lower, it may be a great time to consider a Roth IRA conversion. The lower the value of the Traditional IRA right now, the lower the tax bill upon conversion, and the greater the opportunity for tax-free growth post conversion. Additionally, if the account value continues to decrease after the funds are transferred into the Roth IRA, the client always has the option of recharacterizing those assets back to the Traditional IRA without any tax consequences. For more information, download our Roth Conversion investor education piece or use our Roth IRA Conversion Evaluator to see if a Roth conversion is right for your clients.
  2. Gifting to family members
    For clients considering gifts to other family members, now may be a good time. If account values have depreciated, it can result in a lower completed gift now, combined with the potential for longer-term appreciation after the gift, which is considered free of gift and estate taxes. Higher-net-worth clients seeking significant wealth transfer may want to explore the Grantor Retained Annuity Trust (GRAT), which can be a compelling strategy given low IRS interest rates and lower, current account values.
  3. Reallocating portfolios within taxable accounts
    Reallocating investment holdings inside of taxable accounts while values are lower can minimize taxable gains or maximize taxable losses, which may be used to offset other gains or income.
  4. Use IRAs for charitable donations
    When considering what type of asset or account to use to satisfy charitable wishes, taxable accounts with significant appreciation can be an attractive option. For example, by donating appreciated stock or mutual funds to a charity, the donor can avoid long-term capital gains tax. Conversely, clients generally should avoid donating depreciated, taxable property to charities. Since many account values may be lower right now, retired clients (over the age of 70½) should consider fulfilling charitable contributions via their IRA instead of tapping taxable accounts, which have fallen in value. Distributions from IRAs directed to qualified charities avoid taxes in 2011 and can satisfy required minimum distribution (RMD) requirements.

    For more information, download our Donating IRA Assets to Charity investor education piece.

  5. Convert existing UGMAs/UTMAs to a 529
    Many clients still own custodial savings accounts, which may be subject to the kiddie tax rules. If those monies are earmarked for college, it may be a good time to liquidate those accounts and fund a 529. Selling out of an UGMA, which has fallen in value, could minimize any potential gains when the account is liquidated. When the funds are placed within a 529, clients benefit from tax-free growth and tax-free withdrawals, assuming funds are utilized for qualified higher education expenses. Additionally, 529 accounts are treated more favorably than custodial accounts for federal financial aid purposes.