Planning opportunities abound for high net worth individuals such as lawyers, which is good news but can create confusion and be time consuming even for the most financially savvy planners. Various types of retirement accounts, tax-preferred financial products and trust strategies must constantly be evaluated, monitored and taken advantage of when the opportunity presents itself. When postretirement healthcare planning is thrown into the mix, it’s no surprise that opportunities may be overlooked. We discuss here five commonly missed opportunities that can be corrected with relatively simple steps.
Overlooking the benefits of Roth Conversions in a down market. The primary reason to consider converting a traditional IRA to a Roth IRA in a market downturn involves the tax savings that such a move can generate. Simply put, if the value of the IRA has declined (as is often the case in a market downturn), the IRA assets are converted at that lower value—generating a correspondingly lower tax liability. If the market rebounds, the growth in the Roth assets will be tax-free. If the market continues to decline so that the value of the account assets dip lower than they were at the time of conversion, the transaction can be reversed—“recharacterized”—as late as October 15 of the year following the initial conversion. After the recharacterization, the individual has the option of executing the Roth conversion again to take advantage of an even lower tax burden.
