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Coronavirus, Stock Markets and Tax Planning – Episode 220

tax planning opportunities

IRA Financial’s Adam Bergman discuses the impact the coronavirus is having on the stock market and tax planning opportunities you should consider because of it.

Coronavirus continues to wreak havoc across the globe. As of this writing, the stock market has hit three year lows, wiping out all gains under the Trump administration. Retirement plans are down 15-20% and more. The whole scope of this pandemic may not be known for weeks or months. Mr. Bergman wanted to discuss some tax planning opportunities that may be useful to investors. Basically, the idea is to help deal with the monumental losses occurring everywhere.

Tax Planning Opportunities

Here’s a few things you can consider if you are experiencing large losses in your retirement accounts.

Roth IRA Conversion

If you are invested in really strong stocks with your IRA, a Roth IRA conversion may be a great tax planning opportunity. Generally strong stocks like Apple, Google and Amazon are not immune to bad years. The coronavirus is affecting stocks across the board. However, you know these types of stocks will bounce back. At least, we can assume it’s a safe bet.

As you may know, a Roth IRA offers an investor tax-free distributions during retirement. The caveat is that taxes are generally taken before contributions are made. Therefore, if you contribute to a pre-tax or traditional IRA, you can convert those holdings to a Roth IRA. Of course, taxes will be due on the amount you convert. But now, your assets will begin to earn on a tax-free basis, instead of tax-deferred.

The reason you should consider this option is that you can pay taxes on the current value of your assets. Paying taxes when their value is comparatively low is a better option then paying them when their value is high.

No matter what you are invested in, if your IRA dropped a significant amount, it may be wise to convert the entire amount. This assume you have the funds to pay the taxes out of pocket. Depending on the size of your IRA, you may choose to convert only part of it so you are not stuck with a huge tax bill next year.


You are allowed to gift someone up to a certain amount each year without being taxed. For 2020, that annual limit is $15,000. So long as you stay below that amount, you will not have to dip into your uniform lifetime tax credit. As of right now, that amount is roughly $11.5 million. Yes, that’s a lot of money. That’s the total amount you can give away tax-free over the course of your life and including after you pass. If you have a house, a business, a boat, whatever, that all must be factored in. Anything over that threshold be taxed at the estate tax rate, which is 40% right now.

So long as you stay under that $15,000, you can avoid dipping into that lifetime exemption. What makes it a great tax planning opportunity is that you can choose to gift stocks, instead of cash. Let’s say you own $25,000 in Apple stock and it dipped to $15,000, you can gift that to your child tax-free. Once the economy rebounds, that stock will rise and will be a nice amount down the line.

More Complex Tax Planning

In the podcast, Mr. Bergman briefly explains two other tax planning opportunities. These are a bit sophisticated, so you should consult with an estate planner. The first one is called GRAT, or Grantor Retained Annuity Trust. Essentially, you are taking out assets, that are now a lower value, and putting into a grant or trust. The annuity would hopefully grow more as the assets regain its value.

The other concept is the IDGT or Intentionally Defective Grantor Trust. This allows you to put assets into a trust for estate tax purposes. You continue to pay income taxes on the assets in the trust, however, the assets themselves grow tax-free. This is used to limit the amount paid in estate taxes.

Again, these two tax planning ideas are quite complicated and you should speak to someone familiar with estate rules and regulations. It may be something you can considering doing to make your current situation a little less bleak.

Take Precautions

Of course, everyone’s health is the most important thing in life. We have every confidence that the economy will return to normal in the near future. It always does! Make sure you are following the news and heeding the advice of doctors to avoid contracting this terrible virus. But also pay attention to the tax planning opportunities mentioned by Mr. Bergman, so at least there is a bit of a silver lining during these rough times.

As always, thanks for listening and be safe out there! Nothing to do while stuck at home? Be sure to check out Adam Bergman’s other podcasts on our SoundCloud page!

One last thing before we go, IRA Financial and Adam Bergman are here for you if you have any questions. Anything we can do to help, feel free to drop us a line @ 800.472.0646!


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