CFP Board Consumer Advocate Offers Tips on Dealing with a Turbulent Global Economy
Washington, D.C., July 25, 2016 – With Britain’s recent vote to leave the European Union, the stock market experienced a 700-point decline. In moments like these, the urge to do something with your U.S. and international equities can be overwhelming.
“We often are stoked to make major investment changes based upon events,” said CFP Board Ambassador to Metro-Detroit Robert Schmansky, CFP®. “While trying to time market movements by guessing and gambling the direction of the markets is futile, there are could be opportunities to take advantage of during market declines.”
In a recent article posted to LetsMakeaPlan.org, CFP Board provides a few ideas for those looking to make a move in the wake of a changing global stock market:
Doing an IRA-to-ROTH conversion
One of the benefits of a ROTH account is that your assets can grow tax-free for your lifetime and that of your heirs. At the time of conversion, you will incur an ordinary income tax liability on the value of the assets transferred. Doing this when asset values are depressed allows you to get more of your IRA assets into a ROTH for a given tax cost.
Undoing, then redoing, an IRA-to-ROTH conversion
When stock prices fall significantly in value a window of opportunity also opens for those who did an IRA-to-ROTH conversion in the prior year or earlier in the same year when asset prices were higher. You are able to reverse this conversion, putting the assets moved into the ROTH back into the IRA, which eliminates the tax liability incurred at the time of converting. You can then move the assets returned to the IRA back into a ROTH after a 30-day waiting period. In so doing, again you will incur taxes, but because asset values have declined, the tax cost of the second conversion will be much lower. (Be sure to check the rules and deadlines for ROTH re-characterizations and subsequent conversions on www.irs.gov.)
Leveraging gifts
Let’s suppose you have a block of stock that you intend to give to children or grandkids, but want to keep within the annual gift tax exemption limits. If you make the gift at the time of a big market decline, you can get more shares of stock to your beneficiaries without incurring any gift tax liability.
Reducing the value a large estate to save estate taxes
A down stock market may benefit beneficiaries of very wealthy, recently deceased individuals whose taxable estate consists primarily of stocks. Estate executors can value the estate at the time of death an alternate date up to six months after date of death if is not otherwise sold before, in which case the date determines the estate value of the disposed property. A market decline soon after the death of a wealthy individual opens the possibility of using an alternative date for estate valuation, resulting in more wealth to beneficiaries and less to the IRS.
So when the next crisis hits and the urge to do something becomes overwhelming, try this: Call a CFP® professional and get your own exit plan, one that is triggered by changes in your life and circumstances, and not by all the other people running for the doors.
ABOUT CFP BOARD The mission of Certified Financial Planner Board of Standards, Inc. is to benefit the public by granting the CFP® certification and upholding it as the recognized standard of excellence for competent and ethical personal financial planning. The Board of Directors, in furthering CFP Board’s mission, acts on behalf of the public, CFP® professionals and other stakeholders. CFP Board owns the certification marks CFP®, Certified Financial Planner™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. CFP Board currently authorizes more than 74,000 individuals to use these marks in the U.S.
CONTACT: Jessica Lewis, Communications Specialist P: 202-379-2256 E:jlewis@cfpboard.org Twitter: @cfpboardmedia
ABOUT ROBERT SCHMANSKY, CFP®
Robert Schmansky is the founder of Clear Financial Advisors of Metro-Detroit. Rob has over a decade of experience helping individuals and families meet their financial goals and overcome money concerns. He is frequently quoted in the media on issues regarding personal financial planning, and has been a contributing writer for U.S. News & World Report, Forbes and Yahoo!Finance, and an investment expert for FiLife, a former Dow Jones/IAC joint Internet venture. He has been an adjunct instructor of economics and the required courses for candidates to sit for the CFP® exam. Investment News selected Rob as a 2015 40 Under 40 financial planning professional and he is the 2013 PlanPlus Global Financial Planning Awards North American finalist.
CONTACT: Robert Schmansky, CFP® P: 248-677-1762 E: rob@clearfinancial.net W: www.clear.financial Twitter: @moneyclarity
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