A CPA’s Guide to Help Clients Plan Through Uncertainty

The coronavirus has dealt the U.S. economy an unexpected blow, and people are faced with the challenging task of managing expenses and cash flow while being strategic for the eventual recovery. While economic downturns are never enjoyable, they do present some planning opportunities for you and your clients. The following are some of the things we are discussing with our clients, so we thought we would share with our valued partners. Consider the following ideas as you and your clients navigate the current climate.

RMD’s

-The CARES Act eliminated the RMD requirement for 2020.

-If you already took an RMD, you may have some options to put it back and eliminate the tax bill. The IRS will allow an extension of the 60-day rule, but only for those who took the unwanted RMD between 2/1/2020 and 5/15/2020.

-This is a great opportunity to reduce taxable income for 2020, especially for those that don’t need the RMD for income purposes.

-Keep in mind what your taxable income looks like in 2021; it still may make sense to take IRA income this year.

Tax loss harvesting

-Even in the best portfolio there are times where a fund has decreased in value. Considering the current investment environment, your clients may have some positions they can sell to take advantage of a tax loss while staying invested. While no one likes to lose money, tax loss harvesting can be advantageous to realize losses that will offset gains and income up to $3,000 per year.

-Even beyond the $3,000, clients can carry forward the losses in future years to help offset any additional gains or income going forward.

This is also a really good time to re-allocate your portfolio, at low to no tax cost.

Roth IRA conversions

-In lieu of an RMD, clients can take the amount they would typically take and do a ROTH conversion with those dollars. For those clients who are not yet 72 (RMD age*) it might make sense to move some funds from IRA to ROTH during these low-income years. This is clearly a discussion to have with your tax preparer, but it may be beneficial in future years.

IRA Early Draws, 401(k) Loans

-Under the most distressed events there are some ways clients can access their IRA or 401(k)s in a more favorable way. These funds will still be taxable, but clients may be able to avoid penalties.

We all hope that the coronavirus and its effect on the economy ends swiftly. However, it seems clear that we are already in a self-made recession as a result of the protective measures society needed to implement. Once clients can get past the initial shock of it, and the necessary cash flow planning that accompanies every recession, there is an opportunity to be strategic.  We would welcome the opportunity to talk with those who might benefit from planning through uncertain times. Contact us today. 

Financial Advisors do not provide specific tax/legal advice and this information should not be considered as such. You should always consult your tax/legal advisor regarding your own specific tax/legal situation.

*If you have reached age 70 1/2 in 2019, the prior RMD rules apply and you must take your first RMD by April 1, 2020.  If you reach age 70 1/2 in 2020 or later, you must take your first RMD by April 1 of the year after you reach 72. More information can be found on irs.gov, or speak with a tax advisor regarding your own situation.

TR#3059721 DOFU 4/2020