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UC Goering Center news

Step to the plate with three financial planning concepts

By Adam Curry

With a declining stock market and an economic slowdown, clients may experience a knee-jerk reaction and be tempted to make major changes to their financial plan, such as selling-off equities and moving into “safer” investments. To use a baseball analogy, a down market is like a hitter in a slump. However, great hitters don’t change their swings when slumping. They make small adjustments and look for strategic opportunities to take advantage of the situation. The following are three such planning opportunities.

Shrink your strike zone – Selectively gift to trusts and charities.

When making gifts, there is strategy involved when picking which assets to gift. Like a hitter waiting for the right pitch, be selective when gifting. When charitably giving, it is usually best to give appreciating assets (like shares of stock) when the value is high to maximize the charitable contribution deduction. However, the opposite might be true for gifts to non-charitable beneficiaries, like family members and trusts for their benefit. In a devalued market, a person with an estate tax situation could take advantage of the market decline by making gifts of stocks that could potentially appreciate. This lowers the use of a person’s applicable exclusion amount (currently $11.58 million gift/estate/GST tax exemption).

Example: Harry owns 10,000 shares in publicly traded ABC, Inc. In January, the shares were valued at $100 a share. Given some unusual market volatility, the shares are currently valued at $80 a share in March. Harry gifts the 10,000 shares in March at $80 a share ($800,000 tax value) to an irrevocable trust. He expects the shares to return to $100 a share once the market normalizes. If the shares return to $100 price, then Harry essentially obtained a 20% discount based on the timing of the gift (i.e. gifting in March instead of January).

Step out of the box – Pull cash flow from an alternative asset

For many savers, retirement investments will be at least partially invested in the market, whether in a taxable account or qualified account. A problem can arise in retirement when there is market volatility and a retiree is pulling from their equities to fill a cash flow need. In an unstable market, clients should want flexibility to “step out of the box” and adjust their approach so they are not depleting what might already be a depleted asset.

Consider obtaining a line of credit. In a low interest rate environment, Home Equity Loans and Asset Secured Lines of Credit[i] can provide potential cash to weather the storm of a declining market. This avoids a retiree being forced to sell low when the market is down.

[i] Asset Secured Lines of Credit need to be monitored so the values do not fall below required levels.

The Roth IRA Advantage:

  • No RMDs
  • Tax-free qualified distributions
  • Better tax planning options for Designated Beneficiaries

Move-up in the box – Do a Roth conversion

If an investor has a traditional IRA with holdings in the market, he or she should consider a Roth conversion in a down market if he or she believes the IRA holdings are likely to rebound in the future. This is essentially “moving-up in the box.” The investor will pay income tax on the (currently depressed) value of the IRA at the time of conversion,[i] and, in exchange, no income tax will be due on future distributions from the Roth IRA. This effectively allows the future income and appreciation of the Roth IRA (including any post-conversion rebound in value) to avoid income taxation. Key factors to consider before engaging in a Roth conversion include: the client’s current and projected future marginal income tax rate, whether the client will need distributions from the IRA in retirement to sustain lifestyle, and the client’s life expectancy.

[i] As a reminder, the income tax due on the conversion should be paid from other non-retirement assets (not from the IRA).

Clients should rely on their coaches (tax and investment advisors) when determining if these planning approaches are right given the market environment. Not every strategy will be a good fit for every client, but for some, it could be a homerun!

[i] Asset Secured Lines of Credit need to be monitored so the values do not fall below required levels.

[ii] As a reminder, the income tax due on the conversion should be paid from other non-retirement assets (not from the IRA).

Adam is Assistant Vice President and Wealth Planning Senior Analyst with Fifth Third Bank. Reach him at 513-534-5489 or at

Featured image at top: Chris Chow/Unsplash

About the Goering Center for Family & Private Business
Established in 1989, the Goering Center serves more than 400 member companies, making it North America’s largest university-based educational non-profit center for family and private businesses. The Center’s mission is to nurture and educate family and private businesses to drive a vibrant economy. Affiliation with the Carl H. Lindner College of Business at the University of Cincinnati provides access to a vast resource of business programing and expertise. Goering Center members receive real-world insights that enlighten, strengthen and prolong family and private business success. For more information on the Center, participation and membership visit