Some key tax-planning tips for these volatile times

Thanks to Washington, D.C. celebrating Emancipation Day on April 15, tax filers got an extra weekend to work on returns before today’s extended deadline. It’s a little welcome relief for investors and savers buffered by volatile markets. Here are three tax-planning tips that will help cushion the blow.

1. Rethink retirement savings. Volatility has a significant effect on retirement savings, since most assets held in individual retirement accounts are allocated to equities.

For instance, 40 percent of Roth IRAs were invested in equities at year-end 2013, reports the Investment Company Institute. (Roth IRA conversions have become extremely popular since 2010, when the income-eligibility limits were repealed.)

That first year saw an 846 percent jump in Roth conversions over 2009. As savers watched their retirement account balances decrease toward the end of 2015, many converted to Roth IRAs to leverage the depressed values, and at a reduced tax cost.

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You may want to rethink your conversion. You can do that, luckily, if you converted from a traditional IRA in 2015, because you are permitted to undo it, or recharacterize the Roth conversion, by Oct. 15, 2016.

Tax savings may result from the re-characterization if, after the Roth IRA conversion, the Roth IRA’s value declined significantly. The recharacterization also may affect your taxes for the year of the conversion, and you may need to file an amended tax return with the Internal Revenue Service.

2. Make a gift that keeps on giving. With portfolio values depressed, opportunities arise to benefit from the volatility by gifting assets with depressed values to your children or trusts. Not only will the depressed values reduce the value of the gift, thus reducing the amount subject to federal gift tax, but when the market rebounds or the assets emerge from the dip, the appreciation will accrue to the recipient’s benefit. It will not be subject to additional gift tax.


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