Is now the time to convert to Roth? Tax Strategy Scan

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Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.

Is now the time to convert to Roth?
Although converting traditional retirement assets into a Roth IRA during a market correction will enable investors to save on taxes, such a move may not make sense for some clients, according to this article in Forbes. For starters, a Roth conversion is a taxable event, meaning it is not recommended to clients who have to take retirement withdrawals to cover the tax bill, as well as for those who expect to move to a lower tax bracket in retirement, according to the article. Parents who have a child in college should also avoid a Roth conversion, as it could boost their income and lower their child's financial aid eligibility.

5 ways to help your clients’ finances recover from coronavirus
Clients are advised to remain calm and update their legal documents to assuage their fears during the coronavirus crisis in order to protect their retirement prospects against volatile markets, an expert in Kiplinger writes. They should also assess their tax strategies to boost their savings and find ways to close possible gaps in their retirement income streams, the expert writes. The downturn should also prompt retirement savers to review their risk exposure and make the necessary changes in the portfolio based on their tolerance.

3 tax-planning tips clients can use right now
Clients who are expecting a tax refund are better off filing their taxes as early as possible in order to collect the windfall and improve their cash position during the coronavirus crisis, according to this article in Motley Fool. Long-term savers who are likely to report investment profit this year can write off the gains and reduce the tax bite by harvesting losses in taxable accounts. Raising contributions to retirement accounts is also another strategy that can help clients minimize their tax bill during the downturn.

How clients can avoid paying extra taxes on their college refund
Parents who used funds from a 529 plan to cover education expenses would face a tax penalty if they received a refund on the expenses, an expert in Morningstar writes. To avoid the extra tax bill, these clients are advised to use the refund to cover other qualified expenses or sock away the money in another 529 account with the same beneficiary, according to the expert. "If you choose the latter, the refund must come directly from a college or university, and the timing of when you make the deposit is crucial."

How coronavirus may change clients' financial wellness
Amid all of the anxiety stemming from the pandemic, retirement savers may be more engaged with their wealth.

What are the tax implications of a cash-out mortgage refinance?
A cash-out refinance is an option for homeowners to tap their home equity in order to raise money, according to this article in Bankrate. Clients will owe no income taxes on the cash-out and can claim a tax deduction for the mortgage interest payments if they use the money to fund capital improvements on the property. “If you’re using that money to increase the value of your home and you get to write it off, it’s a double benefit,” says an expert.

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Roth IRAs Retirement readiness Coronavirus 529 plans Financial aid Tax planning