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Financial Planning Insights from Bob Dockendorff JD, LL.M

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This Is the Time to Fund Tax-Preferred Accounts

There's a sale going on...

Yes it's time to invest, but in my opinion, it's always time to invest.

I'm not saying it's time to make clever tactical asset allocation moves, or pick stocks, or time the market. 

But with markets notably down, it's time to realign chess pieces in a way that can complement almost any investment, tax, and wealth management plan. In down markets you can strategically deploy your plan at a better price.

Think of these moves as a way to make certain aspects of your plan more efficient.

  1. Contribute to Tax-Preferred Accounts Like HSAs, IRAs, and 529 Plans

Any account that offers tax-deferred or tax-free growth is a great option right now. Contributions to these accounts are annual recurring items within many financial plans, but often occur in lump sums toward the end of the calendar year.  These are generally accounts with a long time horizon (retirement, college). Investing cash into these accounts now, while markets are low, will allow you to get in at a good price and capture more tax-preferred upside.

If your plan calls for an annual contribution to a 529 or HSA account, consider doing that now rather than later in the year. Or at least averaging in with the markets having been punished.

  1. Convert High Growth Assets to Roth At A Low Valuation

I’ve outlined two popular Roth conversion strategies in prior posts. The first is the backdoor Roth conversion for high-earners, and the second is a series of Roth conversions during early retirement when income is low to minimize future mandatory withdrawals. 

With the markets, down, it’s a great time to make Roth conversions now.

Suppose you have a traditional IRA account with $100,000 in equities just a few months ago. That position may have decreased to around $75,000. If you had a planned to do $50,000 in Roth conversion, now is the time to execute with markets down over 20%.

Think of it this way: you’re simply moving “future growth” from taxable (traditional IRA) to tax free (Roth).

Sure, it hurts to sell equities within an IRA at a loss, but it’s not a true loss if you keep it invested. You’re going to immediately buy back into the investment, keep exposure, and ride the markets back up tax free.

Remember the other benefits of Roth accounts are:

  • No required minimum distributions at age 72
  • No inheritance tax or forced withdrawals for account beneficiaries

The change in circumstances causes some reshuffling of priorities and actions, but it doesn’t cause a stray in the core of your investment or financial plan.

About the Author

Robert E. Dockendorff, JD, LL.M

Robert E. Dockendorff, JD, LL.M

Robert Dockendorff is a Vice President of Claro Advisors, LLC. Bob serves as an Advisor at Claro, where he helps clients achieve financial goals through careful analysis and the development of long-term plans that encourage consistent, achievable actions. Bob also enjoys sharing helpful financial planning insights on his blog and is an active contributor on Investopedia's Advisor Insights website.

Prior to joining Claro, Bob was a Senior Associate Financial Counselor at The Colony Group, supporting a team of financial counselors with research and analysis on all areas of wealth management and financial planning for high net worth individuals. He also focused on the implementation of investment, estate, and tax planning tailored to the specific goals of diverse clients. Prior to joining The Colony Group, Bob worked as a Tax Associate at the international accounting firm Ernst & Young, where he conducted tax research for multi-national businesses. Bob received a Bachelor of Arts in Philosophy from the University of Vermont. After college, Bob earned a Juris Doctor from Suffolk University Law School, Cum Laude, and an LL.M in Taxation from Boston University Law School. Bob has previously passed the FINRA Series 65 and the MA Life and Health Insurance Producer Exam. In his spare time, Bob enjoys the mountains, the beach, and playing golf. Bob resides in Hingham, MA with his wife Caitlin and two sons, Charlie and Tommy.

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