Q: Our brokerage firm has asked us to name a “Trusted Contact” on our investment accounts. Should we put this in place?
A: Having designated “trusted contacts” on file with your brokerage firm is a good idea.
Among other reasons, a trusted contact is a person your brokerage firm or investment advisor can reach out to in the event they suspect possible fraud or financial exploitation. In an environment of increasingly sophisticated cybersecurity threats, too often involving vulnerable seniors, having a trusted contact on file may just be the saving grace that stops a crime in its tracks.
It’s important to know what a trusted contact can and cannot do. A trusted contact is not given any special authorities or power over your accounts. They cannot trade or conduct any business on your behalf. And, they cannot gain access to your financial information. They are just a person that your brokerage firm or advisor can talk to under certain circumstances, including confirming your current contact information, inquiring about your health status, as well as learning the identity of key people named within your estate plan.
Q: I’ve been hearing that doing a Roth conversion in a bear market is tax smart. Why is it more attractive at this particular time?
A: Let me first set the scene. You’ve got an IRA funded with pre-tax contributions. Of course, the flipside of getting that tax break is that someday, when you finally decide to draw from your IRA, you’ll eventually have to pay the taxes. It seems Uncle Sam is always waiting in the wings!
In a bear market, however, your IRA’s balance is temporarily depressed. It’s better to convert part of your regular IRA to a Roth when it’s down in value. After all, you’ll pay less tax on the portion you choose to convert before your investments recover.
However, the benefits of doing a Roth conversion are not quite so clear cut. When done correctly, it takes careful tax analysis and, often, a crystal ball.
For example, if you get too excited and convert too much of your IRA to a Roth, you could accidentally push yourself into a higher tax bracket. This easy-to-make mistake defeats the purpose of legally taking advantage of the IRS. Ideally, you want to do a Roth conversion in a lower tax bracket than you’ll experience in the future (cue the crystal ball!)
Additionally, if you are already collecting Social Security, a Roth conversion could also push more of your Social Security into the taxable column. You really don’t want the IRS to collect taxes on your Roth conversion only to find out a larger portion of your Social Security ends up getting taxed.
