Date: March 27, 2020

A Financial Strategy to Use Right Now

Tax Day Postponed

As I wrote about the other day, I want to begin each update with something positive. As most people know, the IRS has extended tax filing day to July 15th. My read and that of the many CPAs I speak with is that’s across the board. If we are correct, that includes IRA, SEP and HSA contributions as well, along with paying tax owed and estimated taxes. When it comes to taxes, I always have mine done as early as possible so I get it off my list and plan for the rest of the year. Do what is best for you, but please don’t wait until the last minute. If you work with a CPA or other tax professional, know that they have no intention of being locked in their offices come July!

Convert Your IRA to a ROTH

In every crisis, there comes opportunity, some that are obvious and some that are more subtle. Here is one that should have mass appeal. On the broad topic of taxes, I think now is a great opportunity to do a ROTH IRA conversion for those of you who have Traditional IRAs. This strategy would have you convert part or all of your IRA into a ROTH IRA. Doing this would result in a taxable event, as that amount of money becomes taxable income for 2020, payable in April 2021. So, you would need to have cash on hand or in the bank to pay that bill.

Why Should I Consider Converting to a ROTH IRA?

ROTH IRAs are funded with after tax dollars, meaning you do not receive the tax deduction. However, in return for that, the money inside your ROTH IRA grows tax deferred, meaning you do not pay any capital gains or other taxes on that. Additionally, when you withdraw money from your ROTH IRA, you do not pay income taxes or other taxes on that. Also, unlike Traditional IRAs, there is no Required Minimum Distribution for ROTH IRAs so that money can potentially keep growing and growing.

Why now?

To finish up this topic and strategy for the current environment, the reason you would convert now is the same reason I first discussed doing this in late 2009, 2010 and 2011. It’s because overall asset values are down with the expectation that they will recover and be worth a whole lot more down the road. You would be able to pay the tax when your assets have presumably declined in value than when they could be at a higher valuation down the road.


Paul Schatz, President, Heritage Capital