Financial Planning in a Down Market
March 23, 2020    Disclosures    POSTED IN  Personal FinanceTax & Estate Planning

When investment markets experience a significant degree of distress, there are many things that are not necessarily investment related to consider in this environment.  Here is a brief list to assess with your advisor:


Assess your cash needs – Has your situation changed?  Even if not, an emergency fund with adequate cash is the best asset class to help tolerate market volatility. Forget about the 3-6 months’ worth of living needs rule of thumb, it is not enough if it doesn’t help you sleep at night. Only you know the right number.

Stay protected –Bank and credit union account balances are insured up to $250,000 per person with specific limits and rules.  Feel free to reach out to your advisor for guidance or use the following calculators to determine your insurance limits:




Refinance your mortgage – Rates have been almost as volatile as the stock market recently, with a 15-year fixed mortgage dropping below 3.0% briefly last week. Rates are now closer to 3.5% for the 15-year and 4.0% for a 30-year fixed. Rates may well settle back down once the surge of refinancing activity passes through the system.

Pay down non-deductible debt – With savings and money market interest rates so low, it has become even more attractive to pay off loans which do not have tax benefits. Auto loans, student loans, and even home equity lines of credit (HELOC), unless used for capital improvements to a home, are not tax deductible.


Update cash flow and retirement projections – Stepping back from the daily volatility and revisiting personal financial goals and projections helps give the best perspective. It is best to know what, if any, impact this has on the likelihood of achieving your goals.


IRA contributions – If you will have earned income this year, make your IRA contributions and invest now. 2020 contribution limits are $6,000, with $1,000 catch-up contributions for those over the age of 50. Contributing and investing now will allow you to invest at levels 30%+ off market highs and benefit from years of tax-deferred investment growth.

Roth conversions – If your marginal tax bracket will be 24% or less ($171,050 Joint / $85,525 Single), consider a Roth IRA conversion. IRA funds invested in stocks can be converted (and taxed) at lower values.  For example, stock funds worth $100,000 a few weeks ago, might be valued at $70,000 today.  Assuming these funds are converted at the lower value, taxed at 24%, and eventually only recover to their earlier $100,000 value, the effective tax rate for the conversion would be 16.8%.  This is because once the funds are in the Roth IRA, the growth is not taxed again.  If you have many years to let the funds grow, the after-tax benefit can be even larger. Work with your CPA to prepare a tax projection(s) to design the best conversion strategy.

Realize tax losses – When reallocating your portfolio, it may be an opportunity to realize some tax losses. Once realized, these losses carry forward indefinitely to offset gains you realize in the future.

Family Gifts & Estate Planning

529 contributions – 529 plans also provide for tax-free growth if the funds are used for education in the future.  If you have a longer time horizon before your child or grandchild is likely to attend college, adding to these accounts while the market is down has the potential to maximize these benefits over time

Annual exclusion gifts – Each person may give another person up to $15,000 without having to file a gift tax return. For example, a mother and father may give $30,000 combined to each  of their children (or any other individual).

Other estate “freeze” techniques – In 2020, the lifetime exemption for estate and gift taxes is $11.58 million per person ($23.16 million per couple). For those with estates in excess of these amounts and interested in transferring wealth to children and/or grandchildren, it is a great time to discuss strategies to help pass assets to the next generation(s). Grantor Retained Annuity Trusts (GRATs) and Installment Sales to a Grantor Trust are two of the more common freeze strategies to discuss with your advisor team.

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