Tax Management Q&A

May 17, 2023 | Q&A

Tax Management

When markets are volatile, your clients may be anxious and looking to you for ways to use tax-advantaged strategies to help maximize their wealth. Here are answers to questions clients commonly ask.

Q: Should I continue to contribute to my IRA and/or company 401(k)?

A: Yes. If you have uninvested assets that you’d like to put to work, consider funding your retirement accounts early—rather than waiting until you file your 2023 tax returns next year—to take advantage of lower stock prices and future appreciation. As the 2024 tax filing deadline nears, your wealth advisor can help you reconcile your total contributions with maximum annual retirement plan contribution limits.

Q: Should I convert funds in my traditional IRA to a Roth IRA?

A: If you’re finding that your traditional IRA balance has taken a hit in this current volatile market climate, you might consider converting a portion of your traditional IRA to a Roth IRA to maximize future tax-free growth benefits. Keep in mind you’ll be assessed a tax at the time of the conversion and, ideally, you’ll want to pay that tax bill without taking funds from the amount converted.

Q: What other tax-advantaged actions can I take now that could reap benefits later?

A: Here are some strategies you and your wealth advisor might consider when market values are lower:

  • Gifting stocks likely to appreciate when the market recovers to family members in lower tax brackets.
  • Reviewing your investment portfolio for tax-loss harvesting opportunities. Even in a down market, you can offset gains in other areas of your portfolio unrelated to the stock market, like real estate you own or a business you’re selling.
  • Exercising stock options that you may have been granted as part of an executive compensation package. Current market volatility could lower the tax you pay when exercising those options.

Q: With interest rates continuing to rise and tax rate and estate tax exemption changes ahead, what should I do now to prepare?

A: You and your wealth advisor may want to think about:

  • Taking income from your IRA and/or doing a Roth conversion now rather than waiting until after 2025 when effective income tax rates are scheduled to revert to their higher pre-2018 rates.
  • Bunching charitable contributions strategically into one year, whether via a donor-advised fund or another charitable vehicle, to ensure that you exceed the standard deduction limit to maximize the tax benefits.
  • Establishing a qualified personal residence trust (QPRT) if you own a second home of significant value and plan to leave it to children or other heirs.
  • Setting up a charitable remainder trust (CRT), as rising interest rates can boost the present value of the trust’s assets, in turn providing a larger income tax deduction for you. Higher rates may also help qualify younger individuals to create a CRT.

This is provided for informational and educational purposes only and does not consider any individual personal, financial, legal, or tax considerations. The information contained herein is not intended to be personal legal, investment, or tax advice or a solicitation to engage in a particular strategy. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass.

Information is obtained from what are considered reliable sources, but Mariner Advisor Network does not warrant the accuracy of the information. Any expressions of opinion are subject to change without notice.

Investing involves risk and the potential to lose principal. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.

Roth IRA Conversions are complex and treatment depends on the type of IRA that is being converted to a Roth IRA. The views expressed regarding Roth Conversions are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. It is not intended to be a solicitation to buy or sell or engage in a particular investment strategy. Before initiating a Roth IRA Conversion, please consult with a financial and tax professional and ensure you consider all your available options, including applicable taxes, fees and features.

The use of trusts involves complex laws, tax rules, and regulations. Interested parties are strongly encouraged to seek advice from qualified tax, legal, and financial professionals before making any financial-related decisions.