A Roth Conversion Is Not the Goal
There's a quiet enthusiasm building around Roth conversions.
You hear about them at the water cooler. You read about them in the financial press. A friend mentions what their advisor recommended over lunch.
The pitch makes sense on the surface.
Pay tax now while rates are favorable. Move money into a Roth account. Watch it grow tax-free for the rest of your life. Pass what's left to your children without the IRS taking another bite.
It's a compelling idea.
It can also be a costly one.
Here's what the headlines rarely mention. A Roth conversion is helpful, right up until it isn't. The same move that saves one retiree thousands can cost another retiree even more.
The difference isn't the strategy.
The difference is the size.
The Goldilocks Problem
Roth conversions create a Goldilocks problem.
Convert too little, and you may leave a real opportunity on the table.
Convert too much, and you may trigger consequences that show up on this year's tax return, or, in the case of Medicare premiums, a year or two later.
Consider two retirees in similar situations.
Both are sixty-seven. Both have around two million dollars in pre-tax IRAs. Both want to soften the impact of future required minimum distributions and leave a more flexible legacy for their family.
The first retiree maps out the next ten years. She runs the numbers. She converts roughly eighty thousand dollars each year, using the lower tax brackets available to her without pushing too much income into higher-cost territory.
By the time her required distributions begin, her pre-tax IRA is meaningfully smaller. Her future tax bill is smaller too. She feels lighter.
The second retiree hears the same advice in broad strokes and decides bigger is better. He converts three hundred thousand dollars in a single year.
The conversion itself is taxed at higher rates. His Medicare premiums may jump in a future year because Medicare looks back at prior income when calculating IRMAA surcharges. If he's already claimed Social Security, more of those benefits may become taxable. A modest stock sale may be taxed at a higher capital gains rate. His state income tax may rise too.
None of those costs were on the brochure.
Same strategy. Different outcomes.
The strategy wasn't the problem.
The size was.
Why Rules of Thumb Don't Work Here
You may have heard rules like, "Convert while tax rates are low," or, "Fill up the lower tax brackets before required minimum distributions begin."
Those rules sound clean.
They're also incomplete.
A proper Roth conversion analysis looks at far more than your marginal tax bracket. It considers your Medicare premium thresholds. Your Social Security taxation. Your state tax exposure. Your capital gains tier. The shape of your future required distributions. The expected tax bracket of your heirs. Your charitable intentions. The order in which you plan to draw from different accounts in retirement.
Each of those factors moves the right answer.
Sometimes by a little.
Sometimes by a lot.
That's why the question is never simply, "Should I convert?"
The question is always, "How much, and over how many years, makes sense for the life I'm actually living?"
The Move and the Math
The Roth conversion is the move.
The math is what makes the move work.
A well-sized conversion plan isn't a one-time decision. It's a multi-year roadmap. It treats the years between retirement and required distributions as a window of opportunity, then fills that window thoughtfully, year by year, bracket by bracket, with awareness of every secondary cost that could be triggered along the way.
That's not the kind of analysis you do in your head.
It's not the kind of analysis a generic online calculator can do.
And it's rarely the kind of analysis built into the tax preparation conversation, where the focus is reporting last year, not designing the next ten.
That's the difference between tax preparation and tax planning.
One reports what happened.
The other helps decide what should happen next.
It takes time, the right tools, and someone who understands how every line of your financial life connects to every other line.
Bottom Line
If you've been wondering whether a Roth conversion belongs in your plan, that's a fair question to be asking.
The instinct is a good one.
Just don't stop at the instinct.
Before you convert anything, run the full picture. Map the next ten years of income. Stress test the secondary costs. Look at what happens to Medicare, Social Security, capital gains, and state taxes when you change one number on your return.
Then, and only then, decide what to do.
A Roth conversion isn't the goal.
Clarity is.
Confidence is.
Peace of mind is.
The conversion is just one of the tools we use to get there.
If you'd like a full evaluation of whether a Roth conversion belongs in your plan, when to do it, and how much is too much, that's a conversation worth having while there's still time on the calendar to act on it.
Post-Filing Tax Hygiene: Three Things to Do With the Return You Just Filed
There's a category of financial work I think of as tax hygiene.
It isn't the headline-grabbing stuff. It's the small, recurring habits that quietly determine whether your tax life feels under control or chronically off-kilter. Most of the trouble I see with clients doesn't come from missing some clever strategy. It comes from a withholding number that drifted out of date, an estimated payment that slipped past a deadline, or a return that got signed and filed away without anyone asking what it was actually saying.
That last point is where I want to start.
Once your 2025 return is filed, you have something useful in hand: a year's worth of financial data, organized and reconciled. Most people treat the finished return as a chore that's finally over. I'd encourage you to treat it as information. It can tell you a fair amount about what to adjust for the year ahead, and three areas in particular are worth a look.
Review the Return Before You File It Away
Before the return goes into your records, spend twenty minutes with it.
Look at the bottom line first. A meaningful balance due usually means your withholding or estimated payments weren't keeping pace with your actual income. If that goes uncorrected, it can compound into underpayment penalties. A meaningful refund isn't a crisis, but it does mean you lent money to the federal government interest-free for a year.
Either result is worth understanding before you move on.
Then look at what's on the return itself. Sometimes a capital gain shows up that you'd forgotten about, or a side project generated more income than you realized, or a deduction you'd planned around didn't materialize the way you expected. These are the items that often hint at planning opportunities, or planning gaps, for the year ahead. They're easier to act on now than to reconstruct next March.
Finally, take stock of any carryforwards. Capital losses, charitable contributions over your AGI limit, passive activity losses, and foreign tax credits can all carry into future years, but they don't manage themselves. Knowing what's available to you is the first step in using it well.
The return is the most accurate picture you'll have of your financial year. It's worth using.
Recalibrating Your Withholding
Withholding is one of those settings most people configure once and forget.
Life moves on. You change jobs, retire, start Social Security, begin drawing from an IRA, get married, sell a property, or pick up a side venture. Each of those events can quietly knock your withholding out of alignment with your actual tax bill. If your 2025 return showed a meaningful balance due or refund, recalibration is what fixes it.
The IRS publishes a withholding estimator on its website that walks you through your income sources, credits, and deductions, and gives you a target for what your withholding should look like. It takes about twenty minutes if you have a recent pay stub and your 2025 return handy, which conveniently you do.
If the numbers are off, the fix is usually just a fresh form. Employees submit a new W-4 to their employer. People receiving pension or annuity payments use Form W-4P. IRA owners use Form W-4R. And if you'd like more federal tax pulled from your Social Security check, Form W-4V handles that.
The best time to do this is in the weeks right after filing, while the numbers are fresh and the relevant documents are already on your desk.
Tuning Your Estimated Tax Payments
Withholding solves the problem when tax can be pulled directly from a paycheck, pension, IRA distribution, or Social Security benefit. Estimated payments solve the problem when income arrives without withholding attached.
If you have income from self-employment, investments, partnership distributions, rental properties, or retirement income where withholding hasn't been elected, the IRS generally expects quarterly estimated payments. The 2026 installments are due April 15, June 15, September 15, and January 15, 2027. Taxpayers in federally declared disaster areas may have additional time, but absent that, the dates are firm.
Your 2025 return is the natural starting point for sizing these payments. If your non-withholding income was steady, last year's numbers are a reasonable baseline. If something changed materially, whether a business grew, a portfolio started throwing off more income, or a property was sold or acquired, the baseline needs adjusting before you set the year's payment schedule.
The mechanics of paying have quietly modernized. If you have an IRS online account, you can pay through it directly. IRS Direct Pay and the Treasury's Electronic Federal Tax Payment System both work well. The IRS also has a phone app, and the agency accepts credit card payments with a processing fee that's worth weighing against any rewards you'd earn.
Paper checks may still be available, but electronic payments are increasingly the cleaner and more reliable option. If you're a check-by-mail holdout, this is a good year to switch to electronic payments. The transition is genuinely painless once you set it up.
The June 15 deadline is the one that catches people, since it arrives only two months after April. Putting all four dates on your calendar now is one of the cheaper investments you can make in your own peace of mind.
The Big Takeaway
None of this is glamorous.
But the discipline of reading your return as information, recalibrating withholding while the data is fresh, and setting estimated payments with intention is the foundation everything else sits on.
Our work with clients begins here, with the maintenance items that don't generate excitement but quietly add up to clarity, confidence, and fewer surprises next April. If you'd like a second set of eyes on what your 2025 return is telling you, we're glad to help.
The Tax Items Congress Wants, But Probably Won’t Pass Yet
Most months, there isn’t much new tax law to report. This is one of those months.
No major tax rules have changed. But there’s still a useful update worth sharing, because what Congress is debating now can tell us something about where tax policy may be headed, even when nothing has changed yet.
The Short Version
Republicans are working on another budget reconciliation bill before the midterm elections.
Reconciliation is the procedural workaround that lets the Senate pass certain budget-related legislation with a simple majority instead of the usual 60-vote threshold. It’s how last year’s major tax bill became law on a strictly partisan vote, and it’s the most likely vehicle for any significant tax legislation between now and then.
GOP taxwriters would like to see tax provisions included in this next bill. Their wish list includes priorities that didn’t make it into last year’s bill, a framework for taxing digital assets, changes to health savings accounts, easings to the corporate alternative minimum tax, and reforms to refundable credits.
That’s the wish list. The problem is that the vehicle for carrying it may not be available this time.
The next reconciliation package now looks likely to be narrow. The current direction from the White House and congressional leadership is to limit the bill to funding for two Department of Homeland Security agencies, Immigration and Customs Enforcement and Customs and Border Protection.
The administration wants the bill enacted by June 1, which puts pressure on lawmakers to move quickly and reduces the appetite for expanding the package.
In other words, taxes probably aren’t in the next bill. But the wish list itself is still informative.
What We’re Watching, and Why
When tax provisions are debated and then deferred, it’s tempting to file the news away as not relevant yet.
We treat it differently.
The items being discussed today are often the items that resurface when the next legislative opportunity appears. The planning value of knowing what may be coming is highest before the rules are final, not after.
A few specific items are on our watch list.
Digital Assets
A clear federal framework for taxing cryptocurrency and other digital assets has been on the wish list for years and keeps getting pushed.
When it does pass, it could create new reporting obligations and may affect how gains, losses, and transactions are documented. Clients with meaningful digital asset positions should expect this issue to land eventually.
Health Savings Accounts
Proposed changes generally aim to expand who can contribute and how the funds can be used.
HSAs are already one of the most tax-efficient accounts in the code. Any expansion could create new planning opportunities for clients who qualify, especially those trying to coordinate healthcare costs, retirement planning, and long-term tax efficiency.
Refundable Credits
Reform here usually means tightening eligibility and increasing verification.
That connects directly to the broader IRS enforcement story we wrote about separately. The trend is toward more scrutiny of these credits, whether through legislation, enforcement, or both.
Corporate Alternative Minimum Tax
Most individual clients aren’t directly affected by the corporate alternative minimum tax.
But executives, business owners, and investors with exposure to companies affected by the rule may still care about how changes could flow through to valuation, cash flow, compensation, or transaction planning.
The Big Takeaway
None of these tax changes appear imminent.
But they’re still worth watching, because tax legislation tends to move in long pauses punctuated by short bursts of activity. The pauses are when planning happens. The bursts are when the rules change.
We watch the legislative calendar so that when something does move, we already know what it means for the clients it affects. More importantly, we’ve already had the conversations that need to happen.
If any of the items above touch your situation and you’d like to talk through the implications, we’re glad to do that.
A Smaller IRS, a Different Kind of Enforcement
The IRS is meaningfully different than it was eighteen months ago. The agency has lost more than a fifth of its workforce since the start of 2025, its budget has been cut, and most of the funding boost it received from the 2022 Inflation Reduction Act has been clawed back.
What this adds up to isn't just a smaller IRS. It's a different IRS.
The agency is reshaping what it enforces, how it enforces it, and which taxpayers are most likely to hear from it. That story is worth understanding, both because it's genuinely consequential and because the practical implications for taxpayers aren't what you might first assume.
The numbers behind the change
Congress set the IRS's fiscal year 2026 budget at $11.2 billion, about 9% below FY25. House appropriators are pushing for a further cut to $10.2 billion in FY27. The agency has lost more than 20% of its workforce since January 2025 through deferred resignations and layoffs, with additional departures expected this year.
The Trump administration's FY27 budget request includes an 18% reduction in enforcement activity and projects an enforcement workforce below 25,000. Within that already shrunken enforcement arm, some of the largest losses have hit the examination and collection groups, and many of those who left were experienced agents and managers carrying years of institutional knowledge that won't be easy to replace.
In plain English, the IRS has fewer people, fewer experienced reviewers, and less capacity to conduct traditional enforcement the way it once did.
Fewer audits, especially at the top
The audit rate for individuals has been well below 1% for several years, and we expect it to keep falling, at least over the next few years.
Audits of individuals with $10 million or more of income, which numbered 6,786 in FY25, dropped to 2,264 in FY26. Partnership audits fell from 3,174 to 2,932 over the same period. The agency forecasts further declines in both categories in FY27.
For clients in higher income brackets, who historically faced disproportionate audit attention, the near-term picture is meaningfully different than it was even two years ago. The headline probability of a traditional audit appears lower.
But that doesn't mean enforcement risk has disappeared. It means the nature of that risk is changing.
The odds of a traditional audit may be lower, but the audits that remain are less likely to be random noise. They're more likely to be tied to something specific in the return, such as a mismatch, an anomaly, a complex transaction, or an item that doesn't reconcile cleanly with third-party data.
What's replacing the lost capacity
That's the headline. The more interesting story is what's replacing the lost capacity.
IRS leadership has said publicly that fewer audits will be paired with more targeted ones, and the mechanism for that targeting is increasingly data analytics and artificial intelligence. The agency has been investing in software that mines taxpayer data to surface anomalies, flag suspicious activity, and identify cases for review.
Even with reduced funding, the direction of travel is clear: the IRS is leaning harder on technology because it no longer has the same human capacity. The intent is to compensate for the loss of human reviewers by being more precise about who gets reviewed in the first place.
We'll see how well it works in practice. But the direction is clear: less of the broad coverage that audit rates traditionally measured, and more of the targeted attention those same rates fail to capture.
Where enforcement is concentrating
Two areas in particular look like they'll absorb a disproportionate share of the enforcement capacity that remains.
The first is refundable credits, where the IRS estimated improper payments of $21.4 billion in FY24 alone. The earned income credit, the American Opportunity credit, and the premium tax credit are all on this list, and all are well-suited to algorithmic review.
For many higher-income households, refundable credit reviews may not be the primary concern. But they illustrate the broader enforcement shift. The IRS is favoring areas where software can flag returns quickly and where discrepancies can be identified without a large team of experienced agents.
For you, the more relevant version of that same shift is income matching.
The IRS's automated underreporting program compares the W-2s, 1099s, and other third-party tax forms it receives against what taxpayers report on their returns. Significant mismatches generate a CP2000 notice, which is computer-driven and doesn't require an experienced agent to produce.
This matters for households with brokerage accounts, equity compensation, retirement income, business income, K-1s, real estate activity, charitable giving, or multiple sources of income. The more moving pieces there are, the more important it becomes that the return tells a clean and consistent story.
Traditional enforcement may shrink, but automated enforcement can still expand because it requires fewer experienced agents to initiate. As enforcement leans further into automation, expect more of this kind of correspondence, not less.
What it means for you
For you, this all means a few things.
First, the headline audit risk for high-income clients is genuinely lower than it was. That's a real shift, and it's worth naming rather than dismissing. But it isn't a license for casual recordkeeping.
The audits that do occur will be more precisely chosen. That means the cases that get pulled are more likely to be cases where something genuinely doesn't reconcile. Clean books, good documentation, and coordinated reporting matter at least as much in this environment as they did before, possibly more.
Second, the surface area for automated correspondence is growing.
CP2000 notices, refundable credit reviews, and other algorithm-driven inquiries don't feel like audits and may not show up in the headline audit statistics. They may not require the same scope of work as a full audit, but they still require careful review, documentation, and a timely response.
If you receive one, the worst thing to do is ignore it. The deadlines on these notices are real, and the IRS's response to silence is rarely favorable.
Third, the shape of the agency is going to keep changing.
Budget proposals are still being debated, workforce attrition is ongoing, and the technology is still maturing. What looks like a settled picture today may shift again over the next year or two.
That's part of why we follow this closely. Tax planning is most useful when it accounts for where the enforcement environment is going, not just where it is.
Why coordination matters more now
This is also why tax planning and wealth planning shouldn't live in separate silos.
The more complex your income, investments, retirement withdrawals, equity compensation, business interests, or estate planning becomes, the more important it is that the tax return tells the same story as the financial plan.
A smaller IRS may conduct fewer traditional audits. But a more automated IRS may still notice when the pieces don't line up.
That's why tax planning isn't just about finding deductions or reacting before year-end. It's about making sure decisions are coordinated before they show up on a return. Investment decisions, retirement income decisions, Roth conversion decisions, charitable giving decisions, and estate planning decisions can all create tax consequences. The goal is to understand those consequences ahead of time rather than explain them after the fact.
The Big Takeaway
None of this changes the fundamentals of what we do for clients.
We aim to file accurately, document thoroughly, and structure things so that when the IRS does ask a question, the answer is already on the shelf.
That discipline mattered when audit rates were higher, and it matters now, even as the agency asking the questions becomes smaller, more automated, and more selective.
The goal hasn't changed: clarity in your filings, confidence in your position, and the peace of mind that comes from knowing the work was done right the first time.
Tax Update: What You Need to Know Before April 15 and Beyond
April 15 is close. And whether you're putting the finishing touches on your 2025 return, navigating a tax bill you weren't expecting, or thinking through how this year's changes affect your bigger financial picture, this issue covers the ground that matters most right now.
Mega Backdoor Roth Might Not Be Your Biggest Tax Problem
A mega backdoor Roth might not be the best use of available dollars if you already have sizable pre-tax balances in IRAs or retirement accounts. While a mega backdoor Roth can help move new savings into a tax-free bucket, large pre-tax balances may already be creating a future tax problem.
As those balances continue to grow, they can create future RMD pressure, which may increase taxable income, affect Medicare premiums, and reduce tax flexibility later in retirement.
If you already have a large pre-tax retirement balance, the bigger long-term tax issue may not be where to direct your next dollar. It may be the future tax burden attached to money you’ve already saved. A mega backdoor Roth can still be valuable because it helps position new savings for tax-free growth. But if large pre-tax balances are likely to create future RMD pressure, partial Roth conversions may deserve greater priority because they directly reduce that future tax liability.
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The April 15 Deadline: What You Actually Need to Do
Most individual 2025 federal returns are due April 15. If you're not ready, you can file for an extension and buy yourself until October 15 to submit the paperwork. What the extension doesn't buy you is more time to pay. If you owe, that amount is still due on April 15. Pay what you can today and avoid letting interest and penalties compound on the difference.
If a refund is coming your way, file as soon as possible and set it up for direct deposit. IRS has been sending letters to filers who left bank account details off their returns, asking for that information within 30 days. Miss that window and your check comes by mail. At that point you could be waiting six weeks or more past the deadline before you see any money.
If You Owe and Can't Pay
The most important thing is to file your return on time anyway. The penalty for filing late is steeper than the penalty for paying late, so don't let one problem create two.
From there, IRS gives you options. If your total balance (tax, penalties, and interest combined) is $50,000 or less, you can set up a simple payment plan directly through your IRS online account. For more complicated situations, an offer in compromise may let you settle for less than you owe. IRS will want a full picture of your assets and income, and the central question they're evaluating is whether you can realistically pay the full balance. The application fee is $205, though low-income filers are exempt.
One important caution: be skeptical of any firm promising to slash your tax debt for a fee. IRS uses the phrase "offer-in-compromise mills" for these operations, and they rarely deliver what they advertise. If you're facing a difficult tax debt situation, let's work through it together.
Gifting in 2026: More Room to Give
The annual gift tax exclusion rose to $19,000 per person this year. That means you can give up to $19,000 to as many individuals as you choose without filing a gift tax return, paying any gift tax, or touching your lifetime exemption.
If you are single with three family members you want to benefit, that's $57,000 in excludable gifts in a single year. And if you want to give more, larger gifts don't automatically trigger tax. They simply require a Form 709 filing. You won't owe actual gift tax until you've used your full $15 million lifetime exemption.
If legacy planning is part of your broader picture, now is a good time to revisit how your annual gifting strategy fits in.
Retirement Accounts: What's Changing and What's Worth Watching
If you're 70½ or older and making charitable gifts, qualified charitable distributions remain one of the most tax-efficient giving tools available. For 2026, you can transfer up to $111,000 directly from your IRA to a qualifying charity. That amount isn't included in taxable income, doesn't raise your adjusted gross income, and counts toward your required minimum distribution for the year.
Currently, QCDs to donor-advised funds are not permitted. A bipartisan bill in Congress would change that, allowing DAF contributions to qualify the same way direct charitable gifts do. It's worth watching as the legislative calendar develops.
Also worth knowing: the Department of Labor recently pulled back the 2024 regulations that expanded who qualifies as an investment advice fiduciary for retirement accounts. The five-part test under ERISA has been restored, effectively ending a regulatory saga that began in 2016.
The AMT: A Quiet Change With Real Impact
The alternative minimum tax doesn't generate much conversation, but a change embedded in the One Big Beautiful Bill could affect a meaningful number of higher-income households beginning with 2026 returns.
The OBBB permanently extended the higher AMT exemption amounts from the 2017 Tax Cuts and Jobs Act, which is good news. But it also lowered the income thresholds at which those exemptions begin to phase out. Starting in 2026, the phaseout begins at $1 million for married couples and $500,000 for single filers. The exemption also phases out more quickly once those thresholds are crossed.
In practical terms: more filers will owe more in AMT starting in 2026 compared to 2025, particularly those with significant itemized deductions, incentive stock options, or certain investment income. If any of those apply to your situation, it's worth running the numbers before the year gets away from us.
IRS Reform: Rare Bipartisan Progress
There's unusual agreement on Capitol Hill right now around reforming how IRS operates. Senate Finance Committee leaders from both parties have introduced a 63-provision bill aimed at strengthening taxpayer rights and making it easier for individuals and businesses to challenge IRS determinations.
Two provisions worth noting: one would let the Tax Court waive the standard 90-day deadline for filing deficiency case petitions when there are legitimate reasons for the delay. Another would require IRS agents to get written supervisory approval before formally notifying a taxpayer of an assessable penalty.
The bill also proposes regulating unenrolled tax preparers by requiring continuing education and a background check before receiving a preparer ID number. Recent research found significant error rates among this group, particularly on refundable credits and Schedule C items. It's one more reason credentialed, integrated advice matters.
A Few Practical Notes
Filing for a deceased family member. If you're handling a return for someone who has passed, the process varies depending on whether you're a surviving spouse or a personal representative. IRS has a clear, step-by-step interactive guide called "How do I file a deceased person's tax return?" that walks you through each scenario.
IRS enforcement priorities. IRS is actively scrutinizing a handful of abusive tax schemes, including bogus self-employment tax credit promotions, overstated withholding claims, and improper refundable credit filings through Form 2439. If you've seen promotions related to any of these, reach out before taking any action.
529 accounts for home purchases. Two House members have proposed allowing first-time home buyers to use 529 funds tax-free toward a home purchase, with no dollar limit. We don't expect it to gain serious traction, but it reflects how wide the conversation has gotten around housing affordability.
As always, if any of this raises questions about your specific situation, I want to hear from you. Tax planning isn't just about what you owe in April. It's about making sure the decisions you make today still make sense five, ten, and twenty years from now.
Mega Backdoor Roth Might Not Be Your Biggest Tax Problem
You've worked hard to build a sizeable retirement account. Now you’ve heard about a strategy called the mega backdoor Roth, and it sounds like the next smart move.
Maybe it is, but before you redirect another dollar, there's a question worth asking first, “is where you put your next dollar actually your biggest tax problem?”
For a lot of people I work with, the answer is no.
What the Mega Backdoor Roth Actually Does
Here's what I mean. The mega backdoor Roth is a legitimate tax planning tool. That’s because it allows you to contribute after-tax dollars to a 401(k) and then convert those dollars into a Roth account, creating a larger pool of money that can grow tax-free. For the right person in the right situation, it is absolutely worth pursuing.
But the strategy is often discussed in isolation, as if the only question on the table is where to put new savings. And for people who already have large pre-tax balances sitting in traditional IRAs or old 401(k)s, that framing misses the real issue.
The real issue is what’s already in the account.
The Hidden Tax Burden Inside Your Pre-Tax Retirement Accounts
How so?
Well, when you contribute to a traditional IRA or a pre-tax 401(k) over a thirty-year career, you build up a balance that feels like wealth because it is wealth. But it is wealth with a tax bill attached to it, and that bill does not come due until you start taking money out.
And for most people, that moment arrives in retirement, either by choice or by requirement. The IRS calls those requirements RMDs, or required minimum distributions, and they begin at age 73. At that point, the government sets a minimum amount you must withdraw each year whether you need the income or not.
This is where large pre-tax balances can quietly become a tax problem in disguise.
How RMDs Can Increase Your Tax Burden in Retirement
As those balances grow over time, the RMDs attached to them grow too. And when you layer those distributions on top of Social Security, a pension, or other retirement income, you can find yourself pushed into a higher tax bracket than you expected.
If that’s not enough, it can get even more complicated. Higher taxable income in retirement can trigger IRMAA surcharges, which are income-based adjustments to your Medicare Part B and Part D premiums.
It can also affect how much of your Social Security benefit is subject to tax and ultimately, it can reduce your flexibility to make smart financial decisions, because so much of your income is no longer optional.
So then, when someone with a seven-figure traditional IRA asks me whether they should pursue a mega backdoor Roth for their new savings, my honest answer is this that the strategy might help at the margins, but it is not addressing the source of your future tax pressure.
It’s putting a fresh coat of paint on a house that needs foundation work.
Why Partial Roth Conversions May Deserve Greater Priority
So what’s the solution here?
Well, the strategy that deserves more attention in situation with high balance pre-tax accounts is the partial Roth conversion. Rather than focusing only on where to direct new dollars, a partial conversion takes money that already exists in a pre-tax account and moves it into a Roth account.
You pay the tax today, at a rate you can plan around, and in exchange you reduce the size of the account that will generate mandatory distributions later.
When done thoughtfully over several years, especially in the lower-income years between retirement and when RMDs begin, a Roth conversion strategy can meaningfully reduce your future tax burden and give you back flexibility you did not know you were losing.
How to Think About Both Strategies Together
Here’s the key takeaway: the mega backdoor Roth still has a place in this conversation.
If you have the cash flow to fund it and you have already addressed the larger pre-tax balance issue, positioning new savings for tax-free growth is a smart move.
But it is a second step, not a first one.
The bigger point is that tax planning in retirement is not just about optimizing where you put your next dollar, it’s about understanding the full picture of what you have already saved and what that savings will cost you when it comes out.
And the best time to address that future tax liability is before it becomes unavoidable. If your pre-tax balances are growing faster than your plan accounts for, that conversation is worth having now.
One Big Beautiful Bill: What Smart Families Are Doing Now
A few weeks ago, we shared our perspective on the One Big Beautiful Bill and why it marked a defining moment for retirement savers, tax-conscious investors, and families thinking about legacy.
And since then, we’ve had the chance to review the full scope of the legislation, and the practical steps some families are already taking.
What we’re seeing is this: The ones who act early, with clear intent, are the ones who tend to benefit most.
So today, I want to walk you through the strategic moves that are rising to the top, moves you might want to consider before the window closes:
Revisiting the Estate Plan
One of the more overlooked outcomes of the new law is what it does to the estate and gift tax exemption.
Starting in 2026, the lifetime exemption jumps to $15 million per person, and for now, it’s permanent.
Now, if you’ve already put an estate plan in place, you might be tempted to move on. But here’s the thing: the landscape has shifted underneath that plan.
Because when exemption amounts increase, so do the opportunities to move assets off your balance sheet, whether to heirs, to trusts, or to charitable causes, without triggering transfer taxes. And depending on how your documents were drafted, you may not be taking full advantage.
For some, this may be the time to revisit old credit shelter or bypass trusts that no longer serve their purpose. For others, it might mean accelerating gifts, funding multi-generational trusts, or finally setting up that family limited partnership.
But the bottom line is this: the cost of doing nothing just went up.
Rethinking Generosity
For families who give consistently, whether through tithing, donor-advised funds, or community causes, the new law brings both opportunities and limitations.
Starting in 2026, non-itemizers will be able to deduct up to $1,000 in charitable contributions, or $2,000 if filing jointly. That’s a nice gesture.
But here’s the catch: for those who itemize, charitable gifts will now only count to the extent they exceed 0.5% of your adjusted gross income.
Said differently? Your giving has to cross a higher bar before it starts working for you on your tax return.
That doesn’t mean you should give less. But it might mean you give differently.
It might mean consolidating gifts into one year instead of spreading them out. It might mean funding a donor-advised fund now while deductions are fully available, then distributing those gifts over time. And for some, it may mean rebalancing how you give, cash, stock, appreciated assets, so generosity stays tax-smart.
Because while your heart’s in the right place, your strategy should be too.
More Options for Education Planning
If you’re already funding a 529 plan for a child or grandchild, you’ve probably been doing it for one reason: college.
But starting next year, the rules expand, and that changes the game.
Beginning in 2026, you can use up to $20,000 per year, per beneficiary, for K–12 expenses. And not just tuition, also tutoring, online curriculum, test prep, even educational therapy for kids with learning challenges.
That means families who value private school, specialized support, or just more choice in education now have a stronger planning tool.
It also means that if your 529 plan was funded with a long-term view, you may want to revisit how it fits into your shorter-term needs.
And for those thinking beyond college, toward vocational training, certifications, or post-high school credentials, the bill opens the door to use 529s for those costs too.
Bottom line: the tax advantages are broader, the use cases more flexible, and for families who plan ahead, education just got a little more customizable.
Business Owners, Take Note
If you run a business, own real estate, or generate income through a pass-through entity, the new law offers some of the most substantial and durable benefits we’ve seen in years.
Several key provisions have been made permanent, including the 20% Qualified Business Income (QBI) deduction. That’s the deduction that lowers the taxable income for sole proprietors, S corps, LLCs, and partnerships. If that’s you, this isn’t just a line item, it’s foundational.
At the same time, bonus depreciation is back at 100%, and Section 179 expensing has been expanded to $2.5 million. So if you’ve been thinking about making investments in equipment, vehicles, or other capital assets, this may be the time to act, not just to grow your business, but to reduce your taxable income in the process.
For real estate investors, this also means a window to revisit cost segregation studies, accelerate depreciation, and reconsider how your income is being characterized across properties.
And if your long-term strategy includes developing or investing in underserved areas, the Opportunity Zone rules just got new life, giving you the ability to defer gains, enhance basis, and potentially eliminate future capital gains altogether.
In short: If your business is your biggest asset, this is your reminder to make sure it’s also your most tax-efficient one.
One Last Shot at Green Energy Incentives
For years, the government has offered generous tax credits for homeowners who invest in energy-efficient upgrades, solar panels, heat pumps, insulation, new windows, and more.
That window is closing.
Under the new law, many of those incentives expire after 2025. And not in a vague, “we’ll see what happens” way, these provisions are scheduled to end, full stop.
So if you’ve been thinking about making upgrades to your home, vacation property, or rental units, this may be your final chance to get a federal tax credit worth up to 30% of the project cost.
That could mean thousands in tax savings if you act this year.
And while we don’t recommend rushing into a big-ticket project just to chase a deduction, we do recommend reviewing your broader property strategy. Because combining energy efficiency with tax efficiency? That’s a win worth planning for.
The SALT Cap Relief, But Don’t Get Comfortable
For those of you living in high-tax states, there’s a bit of breathing room coming, at least for a while.
Starting in 2025, the cap on state and local tax (SALT) deductions increases to $40,000 for joint filers. That’s a significant jump from the $10,000 cap we’ve been dealing with since 2018.
But before you get too comfortable, know this: it’s temporary.
This expanded cap is scheduled to last through 2029, and then it drops right back down. There are also income phaseouts that start at $500,000 of modified adjusted gross income for couples, and $250,000 for individuals. Those phaseouts increase gradually over the next few years.
In short: yes, it’s an opportunity. But it’s also a countdown.
So if you’re considering strategies like bunching deductions, charitable stacking, or shifting income across years to make the most of a higher SALT limit, now’s the time to plan. Because in a few short years, we’ll likely be having this same conversation all over again.
What Smart Families Are Doing Right Now
If there’s one pattern we’re seeing from families who are positioned well, it’s this: they aren’t waiting for things to “settle down” in Washington.
They’re moving early. Strategically. And with the long game in mind.
They’re updating estate plans before attorneys get overwhelmed. They’re modeling multi-year Roth conversions while tax rates are still low. They’re adjusting charitable strategies, reviewing education plans, and taking advantage of incentives before the door closes.
Not reactively. But proactively.
Because they understand something important, these opportunities have a shelf life. And by the time most people realize it, the window has already started to close.
So if it’s been a while since you revisited your tax or estate strategy… if your charitable giving hasn’t kept pace with the rules… or if you’re simply not sure whether you’re taking full advantage of this planning environment…
Then let’s talk.
This isn’t just about taxes. It’s about creating clarity for your future, and peace of mind for your family.
What to Make of One, Big, Beautiful Budget Bill?
Washington is moving forward with a new budget proposal that could reshape the tax landscape for years to come. And while the details are still being finalized, it’s crucial that you take the time to understand the broad strokes because they’re worth paying attention to.
Here’s what this means:
Lower Tax Brackets
At the center of the proposal is a permanent extension of the 2017 Tax Cuts and Jobs Act (TCJA).
These were the sweeping tax cuts that congressed passed during President Trump’s first term.
Those lower income tax rates were supposed to expire at the end of next year and this bill will now make them permanent.
What this means is that historically low tax environment we’ve been living in may stick around a bit longer, at least for the next four years.
Higher Itemized Deductions
The bill also adds in a few new deductions. There’s talk of expanding the child tax credit, offering tax breaks for things like tips and overtime, and even bringing back a deduction for interest on car loans.
One change that could really matter to higher-income households is a significant expansion of the deduction for state and local taxes, or SALT.
That’s because the TCJA capped SALT to $10,000 per household, which for many individuals in high-value zip codes, has been a thorn in their sides ever since.
Some Drawbacks
Now, not everything in the bill is a giveback. That’s because the Big Beautiful Bill would also roll back several recent reforms.
For example, remember the IRS’s free tax filing tool? Gone.
Or how about funding for IRS enforcement? Slashed.
And many of the tax credits for clean energy investments would also be reversed.
At the same time, there’s also a push to reduce spending on government assistance programs, like Medicaid and food benefits, by introducing stricter work requirements.
And while those cuts may not directly affect many affluent individuals, they nevertheless reflect a broader shift in where the government’s priorities are headed.
It All Comes at a Cost
When it comes down to it, all of these tax cuts come with a price tag.
Indeed, the Congressional Budget Office (CBO) estimates that the bill would add roughly three trillion dollars to the national deficit over the next decade.
And that’s not going unnoticed. Because credit rating agencies are already sounding alarms, with Moody’s downgrading the U.S. outlook just this past week.
So yes, there are plenty of changes packed into this bill, both good and some maybe not so good.
Some may feel beneficial in the near term, but others raise important questions about what’s sustainable, especially when it comes to how the government will eventually address its growing debt load.
What This Means for You
Now, if this bill passes (which it likely will) it will signal that the window for historically low tax rates may be closing.
How so?
Well, we’re in a rare moment where the rules are still in our favor. But that could change quickly.
But the fact is that the national debt is climbing at an unsustainable rate. At the same time, the budget deficit continues to grow with little sign of letting up.
And while this bill offers short-term tax relief to many high-earners, it does so at a long-term cost for the nation as a whole.
Eventually, future lawmakers may have little choice but to raise taxes to close the gap should borrowing costs rise .
That’s why this moment presents a planning opportunity, especially for families with meaningful income, sizable retirement assets, or a desire to transfer wealth efficiently.
If you’ve been thinking about a Roth conversion, accelerating future income into the present, unwinding a concentrated stock position, or gifting assets to heirs or charitable causes, this may be the most favorable tax environment we’ll see for quite some time.
Now, this isn’t about reacting to the news.
It’s about staying proactive and using what we know today to reduce uncertainty tomorrow because if lower tax rates are extended, that gives us more time to work strategically.
And if they’re not? Well, then we’ll be glad we took action while we still had time.
As always, we’re watching the developments closely. And we’re here to help you think through how this moment might apply to your financial picture.
If it’s been a while since we’ve reviewed your tax strategy, or if you’re wondering whether you’re making the most of this window, let’s talk.
Five Reasons Why a Roth Conversion Might be Right for You
You've done everything right: you've worked hard, built a successful career, and saved for the future. But there's one piece of the puzzle that could quietly erode your wealth if you don't plan for it: taxes.
Retirement isn't just about how much you've saved, it's about how much you get to keep. And if most of your retirement savings are in tax-deferred accounts like a 401(k) or traditional IRA, the IRS has plans for that money. That’s why tax planning is crucial now more than ever.
In fact, when it comes to IRAs, those withdrawals you take in retirement will be taxed as ordinary income, and when you turn 75, Required Minimum Distributions (RMDs) will force you to take money out, even if you don't need it.
But here's the thing: what if you could pay taxes on your own terms?
What if you could lock in today's lower tax rates, reduce your future tax burden, and create a more flexible income strategy for retirement?
That's where a Roth conversion comes in.
In fact, by converting a portion of your tax-deferred retirement savings into a Roth IRA, you pay taxes on that money now and at a rate you can control.
In return, your Roth IRA grows tax-free, and when you need to withdraw in retirement, there are no additional taxes owed.
What's more, there are no RMDs, no surprise tax bills, and a better plan for passing wealth to your heirs when it comes to your Roth IRA.
But the big question here is is it the right move for you?
Well, the answer depends on several factors, including your current and future tax rates, your retirement timeline, and how you want to structure your income.
So then, let's break down five key reasons why a Roth conversion could be one of the smartest financial decisions you make in 2025.
#1 Would You Rather Pay Taxes at Today's Rates or Risk Higher Rates in the Future?
First things first, would You Rather Pay Taxes at Today's Rates or Risk Higher Rates in the Future? Think about it: do you believe taxes will be lower in the future? Or do you think they'll go up?
If you're like most people, you're betting on higher taxes. And that's not just a guess. The tax cuts currently in place are set to expire after 2025, which means tax rates for high earners could rise significantly. If nothing changes, the top tax bracket will jump from 37% back up to 39.6%.
And even if the Tax Cuts and Jobs Act is extended, there's no guarantee that tax rates won't go higher in the future given our country's massive debt burden.
Indeed, with rising government debt and shifting tax policies, higher taxes could become the norm. So then, if you wait to withdraw from your tax-deferred accounts in retirement, you could find yourself paying much more in taxes than if you had acted earlier.
That's where a Roth conversion lets you take control. Because instead of waiting to see what happens, you can lock in today's lower rates and create tax-free income for the future.
How so? Well, let's say you convert $500,000 from a traditional IRA to a Roth IRA today while you're in the 24% tax bracket. In this case, you'll likely owe $120,000 (24% of $500,000) in taxes today.
Now, let's assume you wait 10 years, but by then, higher tax rates push you into the 35% bracket. With that same amount, assuming no growth of your savings, you'd likely owe $175,000 (35% of $500,000).
That's a $55,000 difference, just for waiting.
And here's where it really adds up: if that $55,000 in tax savings were invested instead at an average 7% annual return, it could grow to over $400,000 in 30 years, all because you converted when rates were lower.
So then, by making a move today, you're not just reducing taxes, you're potentially adding hundreds of thousands of dollars to your retirement savings all by paying some tax today, to save a lot more in the future.
#2 Do You Want to Avoid Required Minimum Distributions (RMDs) That Could Inflate Your Tax Bill?
The next thing to consider when it comes to determining whether a Roth Conversion is right for you is whether you're comfortable paying your anticipated RMDs.
Now, you may not need the money, but the IRS does.
That's because by the time you're age 75, you'll be required to start withdrawing money from your traditional IRA or 401(k), whether you want to or not. And these Required Minimum Distributions (RMDs) aren't just forced withdrawals, they're taxable income.
Now, depending on how large your retirement accounts are, RMDs can push you into a higher tax bracket, trigger higher Medicare premiums, and cause more of your Social Security benefits to be taxed.
That's where a Roth conversion can help you get ahead of this problem. Because Roth IRAs aren't subject to RMDs, converting today means you keep more control over your income in retirement, instead of letting the government decide for you.
So then, how does this work? Well, let's say you're 65 years old with a $2 million traditional IRA, and it grows at 6% per year. Here's what happens if you don't convert any of it to a Roth.
By age 75, your RMD starts at $87,591 per year. But each year, Uncle Sam forces you to take out more and more money from your IRA each year. So then, by age 90, your RMD balloons to $258,741 per year.
That means you'll be withdrawing more and paying more in taxes, whether you need the money or not.
However, if you convert a portion of your IRA to a Roth before RMDs kick in, you might be able to reduce your future tax burden and avoid being forced into withdrawals you don't want to take.
Put a different way, this isn't just about tax savings, it's about having more flexibility in how you use your money in retirement. So then, wouldn't you rather make that decision yourself or have Uncle Sam force you to take money out of your savings? That’s where prudent tax planning comes into play.
#3 Do You Want to Leave More to Your Heirs Without a Tax Burden?
You've spent a lifetime building wealth, and now you're preparing to pass it on. But do you really want the IRS to take a big chunk of what you leave behind to your children?
Because here's the thing: if your heirs inherit a traditional IRA, they'll be forced to withdraw the full balance within 10 years, and every dollar they take out is taxed as ordinary income.
So then, if they're in their peak earning years, those withdrawals could push them into a much higher tax bracket, costing them hundreds of thousands in unnecessary taxes.
A Roth IRA, on the other hand, passes on tax-free savings to your heirs, and no forced distributions for a spouse. In other words, no income taxes for your kids and no surprises when they inherit your wealth.
How does this work? Well, let's compare a $1 million traditional IRA and a $1 million Roth IRA passed down to your children.
If the money stays invested for 30 years at 7% annual growth, here's what happens. With a traditional IRA, your heirs must withdraw all funds within 10 years, and assuming they invest it, after taxes, it grows to $5.8 million.
However, if you left behind the same $1 million in a Roth IRA, it's possible that the portfolio would grow tax-free to $7.6 million and be available for tax-free withdrawals. That's a $1.8 million difference, all because of taxes.
Even if your heirs don't need the money right away, a Roth IRA lets them delay withdrawals until it makes sense for them, avoiding tax spikes and keeping more of your legacy intact.
So then, if you're planning to pass on wealth, the question is simple: Do you want your money to go to your family, or to the IRS?
#4 Could a Roth Conversion Help You Save on Medicare and Social Security Taxes?
Most people don't realize that their Medicare premiums and Social Security benefits are tied to their taxable income. In fact, the more income you report in retirement, the more you could pay for healthcare and the less of your Social Security you'll actually get to keep.
How does this happen? Well, it happens because withdrawals from a traditional IRA count as taxable income. So then, even if you don't need the money, those withdrawals could push you above key income thresholds, and trigger higher Medicare premiums which could make up to 85% of your Social Security benefits taxable.
A Roth IRA on the other hand avoids this issue because withdrawals don't count as taxable income. That means you can take money out as needed without pushing yourself into a higher tax bracket or triggering unexpected penalties.
How so? Well, let's take a couple who are 67 years old and are planning to retire soon. They have $1.5 million in a traditional IRA and $60,000 in combined Social Security benefits per year.
Now, if they start taking $80,000 per year from their IRA, they're likely to face a few complications. First, their Medicare premiums likely will increase due to IRMAA (Income-Related Monthly Adjustment Amounts). Next, they could find that up to 85% of their Social Security benefits become taxable and so, their total tax bill and healthcare costs jump by over $112,000 over their retirement.
Now, let's say this same couple converts $300,000 over three years into a Roth IRA before claiming Social Security and Medicare. In this case, their taxable income stays below Medicare surcharge limits, their Social Security remains largely untaxed and they save over $112,000 in combined healthcare and tax costs.
So then, this isn't about avoiding taxes, it's about planning ahead, especially when it comes to balancing retirement income with goverment benefits. From this perspective, why give more to the IRS when you can keep more for yourself through prudent tax planning?
#5 Are You Planning a Move to a Lower-Tax State?
Finally, where you live in retirement matters a lot, especially if you're considering a Roth conversion.
In fact, if you're planning to move from a high-tax state like California or New York to a no-income-tax state like Florida, Texas, or Nevada, the timing of your Roth conversion could save you tens, if not hundreds of thousands of dollars in state taxes.
That's because when you complete a Roth conversion, you'll also end up paying state taxes in the year you convert. So then, if you do a Roth conversion while living in a high-tax state, you could owe state income tax on that conversion. But if you wait until after you move, you could pay zero state tax on the conversion.
How does this work? Well, let's say you have a $1.5 million traditional IRA and are moving from California to Florida. You decide to convert the full amount before moving and California state tax (13.3%) on $1.5M conversion leads to $199,500 owed in taxes.
Now, let's say you wait until after you move to Florida where you pay no income tax. Here, you could effectively save $199,500 in taxes just by planning your move before coverting.
But what if you plan to stay in a high-tax state? A Roth conversion might still be a smart move, especially if state tax rates are expected to rise. In other words, locking in today's rates could still be a win.
Regardless, if you're thinking about moving, or even if you aren't, state taxes should be part of your Roth conversion decision. Because when it comes to taxes, timing is everything.
So, What's Your Next Move?
Let's be honest. Nobody enjoys thinking about taxes. However, whether you think about them or not, you will pay them on way or another. So then, the real question is not if you will pay taxes, but when and how much.
Right now, you have an opportunity to do some prudent tax planning. Tax rates are at historic lows, and you still have time to plan. Most importantly, you have the ability to decide what happens next, which might not always be the case.
So what's your plan?
Are you going to wait and hope the tax code works in your favor? Are you going to let the IRS determine how much of your wealth stays with you and how much goes to them? Or are you going to take control of your financial future while you still can?
Here is what we know. Tax rates are expected to rise in the coming years. Required Minimum Distributions could force you to withdraw more than you need, potentially pushing you into a higher tax bracket. If you plan to pass on wealth, your heirs could face a significant tax burden unless you make a plan.
Medicare premiums and Social Security taxes can increase unexpectedly, but with the right strategy, you can avoid these unnecessary costs. And if you are planning to move to a state with lower or no income tax, the timing of your Roth conversion could save you thousands of dollars.
That sounds like a lot. But here's the good news.
You do not have to figure this out on your own. You have time to plan. You have the ability to make smart decisions today that will give you more financial freedom in the future. Most importantly, you have options.
That is why I am here. Let's run the numbers, talk through your options, and build a strategy that works for you. The best time to plan for your future is today.
If you are ready to take the next step, schedule a call and let's get started.
The Market Feels Unstable — Here’s How to Stay on Track
There are times in market cycles when economic, geopolitical, and financial conditions converge in ways that create palpable uncertainty. In many ways, it can feel like standing on the precipice of an abyss.
Today, I would argue that we are in just one of those moments.
Often, it’s not just one event, but a cascade of interconnected developments that lead one to conclude that things are about to get bad.
History Often Rhymes
Early on in my career, it started with the failures of Bear Stearns and Lehman Brothers, the nationalization of Fannie Mae and Freddie Mac, and the bailouts of AIG and Citi, all of which signaled the fragility of the global financial system in 2008.
In 2020, early reports of health warnings, travel restrictions, and border closures eventually escalated into a near-total shutdown of the global economy, prompting widespread existential fear.
Now, in early 2025, we are experiencing heightened uncertainty as the resumption of trade wars with ambiguous objectives, shifting geopolitical alliances, and a retreat from post-war global institutions and a seeming move towards isolationism create a new political and economic reality. These shifts pose significant implications for the global economy and financial markets.
Needless to say, there is much to worry about in the current political, economic, and market environment. It’s enough to make any sane person want to bury their savings in their backyard.
How to Navigate the Uncertainty
That said, having been through multiple market cycles, being an avid student of history, and considering my background in macroeconomic strategy, I would like to share some thoughts on how to frame today’s environment and what you can do about it financially.
Firstly, I want to acknowledge that we are in the midst of an anxiety-provoking time in U.S. history. I am not going to discount the legitimate fear that many of us may be feeling right now amidst all the political tumult and economic uncertainties. This is a natural response.
With that said, when it comes to investing and the markets, it’s crucial to remember that we’ve been through similar challenges in the past. And with history as our guide, during times like these, it’s essential to remain committed to a long-term, disciplined investment strategy.
Make no mistake, what’s happening today will have significant implications for years to come.
Why It’s Essential to Stay Committed for the Long-term
However, history has shown that, from a capital markets perspective, risk assets tend to sell off during political and economic inflection points, before eventually recovering. These ebbs and flows are a natural part of the market process when key narratives change.
In fact, over the past 100 years, there have been many paradigm-shifting political and economic events, but stock prices continued to march higher thereafter. This point is evidenced in Figure 1.
To be sure, financial markets, after periods of uncertainty, do eventually recover as investors eventually adapt to new political or economic paradigms. Indeed, as figure 1 illustrates, risk asset prices are naturally biased to the upside because if they weren’t, then investing would not be much different from gambling, would it?
Nevertheless, you might say that now is not the right time to be in the markets and that you would prefer to get out. However, history has also shown us that exiting the markets at the wrong time could lead to major disappointment down the road.
For example, Figure 2 shows how missing even the best five days over the past 20 years could have led to significant missed opportunities in the markets. Indeed, back in 2008, it is arguable that peak market fear occurred at the end of the year, just a few months before the market bottomed out in March 2009.
Similarly, in 2020, peak fear occurred in late February before markets bottomed out in March and then took off again in April. Therefore, trying to time the markets or get out when it feels like things are starting to get bad might work against you over the near- and long-term.
Practical Steps to Take
So then, amidst all of this, what should you do about it all?
Well, in uncertain times, many investors often find themselves torn between taking action and standing still.
Here are six key strategies to consider regardless of where you stand today:
#1 Know Your “Sleep Well Number” (Cash Management)
When it comes to cash management, during times like these, it is crucial to know your “sleep-well” number. Depending on where you are in your retirement journey, having enough cash on hand to cover six to eighteen months of living expenses is something to consider now.
Having this number available will enable you to avoid making knee-jerk decisions with your portfolio, enable you to stay committed to your long-term strategy and avoid selling assets at an inopportune time.
#2 Rebalance Your Portfolio
Rebalancing your portfolio now allows you to take some risk off the table. Markets have rallied handsomely over the past eighteen months, which means that your current holdings are very likely out of alignment with your strategic asset allocation.
Rebalancing includes taking gains from positions that have done well in your portfolio and adding to positions that are underallocated in your portfolio relative to your strategic allocation. This approach ensures that you’re not taking any more risk than necessary with your investments.
#3 Stick to Your Long-term Plan
When in doubt, stick to your plan. Remembering your long-term plan is essential during market uncertainty. That’s because it is easy to become distracted and search for a salve to relieve the unease in the near term when things start going off the rails.
However, it’s crucial to remember that your financial plan was created to help you navigate not just the good times, but also uncertain times like the ones we’re experiencing today.
#4 Reconsider Big-Ticket Purchases
If you are contemplating purchasing a new home, car, or other big-ticket item, you may want to consider holding off on any moves for the next few months. This approach will allow you to preserve cash and ensure that you are not locking yourself into a decision at an inopportune time.
#5 Sharpen Your Pencil
At the same time, it is worth sharpening your pencil. Warren Buffett is known to have said, “Be fearful when others are greedy, and greedy when others are fearful.” Depending on your living situation and cash position, fear-driven market sell-offs often provide opportunities to purchase assets at a discount.
If you are in a solid cash position, keeping an eye out for favorable buying opportunities once we have more clarity on the political and economic environment could be worthwhile.
#6 Consider Tax Planning Opportunities
Finally, market sell-offs also present an opportune time for tax planning. And a key tax planning approach includes completing a Roth conversion. That’s because lower portfolio values often translate to lower taxable values. Remember, Roth conversions are not just a fourth-quarter tactic but a year-round opportunity.
Similarly, market downturns can present opportunities for tax-loss harvesting. This approach involves selling stocks at a loss and buying a similar but not identical asset. Even if you do not have gains to offset the losses, you can carry forward the losses as a tax asset to offset future capital gains.
The Big Takeaway
When it comes down to it, the big takeaway from an investment perspective is to stay invested for the long term even though the near term seems so uncertain. While we may be headed for a dark period in the months ahead, I am reminded of how essential it is to remain optimistic.
Viktor Frankl, a Holocaust survivor and author of the book, “Man’s Search for Meaning”, points out in his work that those who adapted and sought meaning in each moment, especially in trying times, had greater ability to endure trials and uncertainty than those who did not.
Make no mistake, we are likely headed for some very trying times in the weeks and months ahead. From a political and social perspective, we do not have a roadmap for navigating what lies ahead, which means we will have to take things one moment at a time. As difficult as that may be, however, finding purpose and direction in uncertain times has always been a defining trait of those who successfully emerge from such events.
What’s more, from a financial perspective, history has repeatedly shown that uncertain times like these often create opportunities for those who stay the course. That’s why having a solid financial plan and a disciplined investment strategy is essential now more than ever. While the near-term outlook may be uncertain, remaining objective and committed to a well-thought-out financial plan continues to be the best way forward.