Financial Planning Strategies to Deploy in Uncertain Markets – Jill Bertke, CFP® | TVAMP

Practical financial planning considerations provided by our very own Jill Bertke. 

Jill Bertke, CFP®Jill Bertke, CFP® brings nearly 20 years of financial services experience to TVAMP. Jill’s mission has always been to help clients by growing, managing, and protecting their money. She sees them through all of life’s transitions. She enjoys making floral arrangements, traveling, and watching Indiana University basketball!

In 2020, we have already seen some very large market declines.  However, history does tend to repeat itself which should give us all hope.  We remind investors to stay focused on the big picture during times like these.

Below is a chart from MFS that reflects how markets tend to post strong long-term gains after sharp declines.

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We are constantly exploring financial planning strategies for our clients, but even more so in today’s ever-changing environment. Here are three strategies to consider:

Tax Loss Harvesting
    • By definition, this is when you sell an investment that has experienced a loss and replace it with another similar investment. This helps to maintain your asset allocation and targeted returns.
    • If you have more than $3,000 in capital losses, you can carry the excess forward for use in future years (which can be used to offset capital gains in the future). This helps when markets return to peak stages and we need to sell gains to rebalance to the original model.
Adding Roth option to your 401(k) Account
      • Review your investment selections and rebalance your account back to your selected model allocation.
      • Consider increasing your contribution amount going into the plan. Volatility sometimes creates great buying opportunities (dollar-cost averaging is key).
      • Have you considered Roth 401(k) versus Pre-Tax 401(k) options? If tax rates increase in the future, Roth 401(k) options may become more tax advantageous – especially since there are no income limitations to contribute to a Roth 401(k).  Please check with your plan sponsor to see if Roth is an option in your 401(k) plan and consult with a tax advisor.
RMD Waiver for 2020 – applies to Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k), 403(b), and 457(b) Plans
    • This waiver is optional. You can continue to take your normal RMD for 2020 and pay the tax at today’s tax rates. It may lessen the amount you pay out of your IRA in taxes if tax rates go up in the future.
    • If you have liquid funds to pay a tax and don’t need the income, you might consider converting your RMD amount into a Roth IRA account. The amount will grow in a Roth IRA bucket tax-free and all withdrawals in the future will be tax-free.  This only works if you have a taxable separate bucket to pay the taxes due on the Roth conversion amount.
    • Look at your current tax rate and consider converting more of your traditional IRA (beyond just your RMD amount) into a Roth IRA. One strategy may be converting enough to put you at the high end of your current tax bracket.  Again, this works if you have a taxable separate bucket to pay the taxes due.  This will help to hedge the bet that tax rates may increase in retirement and give you a new tax-free bucket to use in the future.

 

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Dollar-cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax-free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.

MFS is not affiliated with TVAMP.

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