To say the start of 2022 has been a disappointment in the markets is an understatement! Inflation, rising interest rates, and the ongoing war between Russia and Ukraine have affected both the stock and bond markets. It is never fun to see our portfolios reverse but we know this is natural and that historically, time has proven to be one of our biggest allies.
One strategy that may be of interest right now because of lower portfolio values, is the Roth IRA Conversion. Simply put, it’s converting all or a portion of an existing Traditional IRA (pretax dollars) to a Roth IRA (post tax dollars). When utilizing this strategy, you will pay taxes on the amount you convert as it will be realized as income. During market scenarios that may have lowered the value of a portfolio, you would be able to convert more shares, leaving room for a potentially larger tax-free benefit over time.
This strategy doesn’t suit everyone. If you are in a high tax bracket or perhaps are already expecting a growth in income this year, then this may not be a fit for you.
Give us a call if you would like to explore this concept and we can discuss how you may or may not be a fit for this approach.