772-320-9658 [email protected]
Chapman Capital Advisors | Client Portal

When Was The Last Time?

by | Apr 16, 2020 | The Ship's Wheel

 

When was the last time you worried about polio?

COVID-19, the novel coronavirus, has swept a path of fear and destruction across our planet.  Our current situation is not as novel as it may seem.  America experienced something similar, though to a lesser extent, with polio.  Polio was at its height in the early 1950s, when it paralyzed over 15,000 people per year.  There was no known prevention or cure. Fears that the virus was waterborne resulted in the closing of beaches and pools.  Movie theaters, bowling alleys, and other gathering spots were closed.  People kept away from crowds.  Everyone was at risk, especially children.

My dad contracted polio as a boy in the 1950s.  He was in the Upper Peninsula of Michigan fishing with my grandfather and uncle when he fell ill.  My grandfather rushed him to the Sister Elizabeth Kenny Rehabilitation Hospital in Pontiac, Michigan.  He spent what must have felt like an eternity in an iron lung, and endured Sister Kenny’s painful rehabilitation therapies.  Miraculously, he did not suffer any permanent physical damage.

Pessimism sounds smart in times like these.  Much of what the pessimist says is self-evident.  What the optimist says must be taken on faith, as there is no evidence.  And yet the optimists have been right.  Our world has steadily improved.  Jay and I think that will continue.

Warren Buffett wrote, “A great investment opportunity occurs when a marvelous business encounters a one-time huge, but solvable problem.”  Corporate America is a great business and the coronavirus is solvable.  You don’t have to take that on faith.  China, South Korea, Hong Kong, and Singapore have solved the virus.  If they can, we will too.

April 12, 2020 was the 65th anniversary of Jonas Salk’s vaccine that prevented polio.  We will have a similar such anniversary for COVID-19, hopefully soon.

 

Am I eligible to Convert my Traditional IRA to a Roth IRA?

Converting your Traditional IRA to a Roth IRA can be one of the best financial decisions made when saving for retirement if done correctly. Prior to 2010 there was an income limit that restricted the conversion to a Roth IRA if your (AGI) was over $100,000. As of 2013, the income limitation does not exist for a conversion, but it still exists for contributions. This does not mean it will not come back in the future, but for 2013 and beyond anyone can convert an existing Traditional IRA to a Roth IRA regardless of income.

For example, someone has a Traditional IRA with $350,000 invested, that IRA can be converted to a Roth and all the taxes need to be paid for the tax year the conversion was completed. After converting to a Roth, the money grows tax-free. Paying the taxes on this money now might sound like a tough pill to swallow, but the potential tax savings down the road can be significant. Wouldn’t you rather pay taxes on $350,000 now than pay taxes on $1,000,000 in the future? One of the keys to doing this correctly is paying the taxes with funds outside of a qualified plan. Paying the taxes with money from the IRA defeats the purpose and will negate the full tax saving potential.

This is just one example of completing a Roth conversion. You can do partial conversions as well. This means you do not have to convert the entire account. You could develop a strategy of doing partial Roth conversions over multiple years. The key is to consult with your tax advisor or accountant to make sure the conversion will not put you into another tax bracket. Every dollar you convert is taxed at your ordinary income tax rate. This strategy works best for younger investors who have longer to allow the money to grow and compound. It can also work well for an older investor who is in a low tax bracket. Another reason to convert to a Roth is that Roth IRAs are not subject to the Required Minimum Distribution after you reach age 73. For those of you out there that do not plan to use your IRA money to live this can be a huge advantage when it comes to passing along your IRA to your beneficiaries. Roth IRAs continue to grow tax-free after the conversion and after you die. There are distribution requirements for the beneficiaries, but the distributions are tax-free as well.
This strategy might not be right for everyone. I would advise you to consult with a Certified Financial Planner™ or your tax advisor prior to taking advantage of this potentially large tax savings. One of the best times to complete a Roth conversion is when the value of your Traditional IRA has fallen due to a market correction like we experienced in 2022. If you have questions on this article or would like to schedule a free financial review. Please contact Jay Chapman at 772-320-9658 or email [email protected].

Jay Chapman| CFP®

Jay Chapman| CFP®

Founder

Jay Chapman, CFP®, is founder of Chapman Capital Advisors, as a member of the advisory team. He has over 20 years of experience in the Financial Services industry.

Will Thompson | CFA®, CFP®, AIF®

Will Thompson | CFA®, CFP®, AIF®

Advisor

Will provides the in-house expertise of CFP®, CFA®, and AIF® that is uncommon for boutique firms.


Let's Start a Conversation

3 + 6 =