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COVID Financial Planning Opportunity 3: Tax Planning

Because of COVID, a great opportunity to review all of your tax planning needs has been created. This article details everything you need to know.

The third financial planning opportunity that COVID has brought us is to plan your taxes. Previously we discussed revisiting your goals as well as reviewing all of your expenses. This article will detail everything you need to know about tax planning.

There are always tax planning opportunities. This year, has brought us many, many more.

The Cares Act brought many tax planning opportunities and stimulus to the table – from student loan flexibility, withdrawals from IRA flexibility, 401(k) loan increase, business tax cuts and provisions, and stimulus checks. I am not planning to even try to list them all here! New legislation for further stimulus is being decided on as I am writing this, so I am sticking with planning that we anticipate to remain in place towards the end of the year. 

The tax opportunities I want to focus on in this article are:

  • Roth Conversions
  • Things to think about with your capital gains and losses
  • A few other notable Cares Act provisions

ROTH Conversions

I want to talk about Roth conversions because they make sense for a lot of people, yet they can be tricky. I’ll be doing a full article on Roth conversions, but this year given market volatility and COVID-19 impact on lower income amounts, business losses, and potentially overall being in a lower tax bracket, it is a planning strategy that could be looked at for many. I use Roth conversions as a tool for individuals of all ages, but you’ll want to evaluate if it’s the right situation for you or you could come up with a hefty tax bill at the end of the year.

So, what is a Roth conversion?

A Roth conversion, or sometimes known as a “backdoor Roth IRA” is a way to move part, or all, of your Traditional IRA, into a Roth IRA, penalty free. 

Remember: A Roth IRA is a type of IRA that is funded with after tax dollars, and comes out completely tax free in the future. A Traditional IRA is funded with pre-tax dollars, so you get a deduction on your contribution going in, and pay tax on everything coming out.

So, when converting from a traditional IRA to a Roth IRA, you will pay income tax on those dollars in the year of the conversion (there is your tax bill). But, once it goes into the Roth it can grow tax free from there.

ROTH Advantages

Why is getting your money to a Roth so ideal? Why would I want to pay tax right now? A few reasons:

  • Tax free growth in the Roth IRA is very powerful
  • If you believe to be in a higher tax bracket later in life, you can pay the tax now, and withdraw the money tax free later on, effectively paying now at your lower tax rate.
  • No RMD’s – it can sit in there for as long as you need and pass down to heirs tax efficiently. 
  • A lot of people have income too high to do a Roth IRA contribution outright. Roth conversions have no income limitations – so this is a way around that limitation and a way to get money into a Roth IRA.
  • Diversifying future income buckets during retirement. This gives you flexibility and control over your taxable income.(1)

Specific ROTH Advantages for 2020

Due to COVID, 2020 has several advantages specifically aimed at ROTH IRAs:

  • If you believe your bracket this year to be lower than it normally is, from either being furloughed, laid off, or your business taking a loss, it could be a good time to do this.
  • Did you waive your Required Minimum Distribution (RMD) this year? Consider converting what your RMD would have been, as you normally cannot convert an RMD.
  • If your IRA is at a lower portfolio value because of market volatility, you could convert at a lower value, assuming the portfolio may recover in your Roth IRA, giving you more tax-free dollars.

Things to think about with capital gains and losses

The market this year has been all over the place. We saw a huge dip in March and April, and then some sectors and industries roaring back throughout the year. 

Also, to consider, the tax law may change after this year depending on the economy and the election. Overall, tax rates are historically low. A few things I believe you’ll want to pay attention to:

  • Review the capital gain tax brackets. If COVID-19 has pushed you to a lower bracket, consider taking capital gains now.
  • Capital gains rates are historically low right now. If taxes change in order to fund the pandemic economic stimulus we saw this year, they may not continue to stay at these rates.
  • Consider offsetting some of your capital gains with capital losses from your holdings that may take some time recover due to the industry getting hit with the pandemic. You can buy them back after a 30 day waiting period.

Some other provisions to note, of the many in the Cares Act:

  • You can now get an above the line deduction for charitable contributions up to $300. Normally, you can only take advantage of them when you itemize your deductions. This year is not the case! Non-profits need donations more than ever this year – and this deduction could be used to partially offset a Roth conversion.
  • Waived Required Minimum Distributions – this is another avenue that could open up the Roth conversion planning strategy.
  • IRA withdrawal flexibility and 401(k) loan increases.

COVID Financial Planning Opportunity 2: Tax PlanningSummary

This article covered a lot. Especially with Roth conversions, it’s important to assess your situation for this year to determine if any of these strategies make sense. If you have any questions on any of these changes, or are wondering if these would make sense for you, please feel free to reach out.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through Marshall & Sterling Wealth Advisors, a Registered Investment Advisor. Marshall & Sterling Wealth Advisors and Marshall & Sterling Wealth Management are separate entities from LPL financial.

Opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations. To determine which investment may be appropriate for you, consult with your attorney, accountant, or financial advisor prior to investing.

 (1) Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a requirement minimum distribution (RMD), in the year you convert, you must do so before converting to a Roth IRA. A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRA penalty tax. Limitations and restrictions may apply. 

Kelsey is a Wealth Planning Advisor and Certified Public Accountant at Marshall & Sterling Wealth Advisors, located in the New York tri-state area. Kelsey enjoys working with those who feel they find themselves juggling various financial goals and they aren’t sure where to put their money first. Whether it’s saving for their children’s education, maximizing corporate benefits large corporations, or wanting to know if they can afford that dream upstate house, she helps them pull the pieces together into a clear path to success. Kelsey has an MBA and B.S in Accounting from Alfred University. She also holds her Series 7 with LPL Financial, Series 66 with LPL Financial and Marshall & Sterling Wealth Advisors , and New York life insurance and annuity license. Prior to working in wealth management, she worked as an auditor in both the public and private accounting industries. In her free time she enjoys running and exercising, reading, and she is an enthusiastic supporter of local businesses, specifically in the Hudson Valley. She can be reached at reached at or 845-554-1046 x2353. You can read more about Kelsey and Marshall & Sterling Wealth Advisors at

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