Retirement plan investors should position their portfolios to pay taxes sooner, rather than later, according to Ed Slott, founder of IRAhelp.com.
And one strategy to do this is by converting traditional IRAs to Roth IRAs, Slott said Tuesday during a roundtable discussion on how the next round of federal stimulus money will affect the economy. The rountable was sponsored by public relations firm JConnelly.
Doing an IRA conversion or using other strategies that let investors pay taxes on their saving now are good moves because taxes will have to increase to pay for the massive stimulus packages that have been passed and the one now being debated in Congress, said Slott. He is the author of “The New Retirement Savings Time Bomb.”
Stephanie Link, chief investment strategist and portfolio manager at Hightower Advisors, a financial services firm based in Chicago, agreed higher taxes are inevitable in order to pay for the growing federal debt, but she added that the timing of the increase is the big question.
“I don’t see any way President Biden can increase taxes before at least 2022,” Link said, “and then the bulk of that will be on corporations. The economy will then have a tax headwind, but so many other things are going right with the economy that the effect could be minimal.”
The bigger question, according to Calvin Williams, Jr., founder and CEO of Freeman Capital, an investment management firm based in Charlotte, N.C., is how to make sure everyone participates in the recovery.
“Clients are nervous because they are concerned about the economy,” Williams said. The recovery has lagged in communities of color and unemployment is a problem, he added.
“Even veteran investors are concerned about the economy,” said Jeanette Garretty, managing director and chief economist at Robertson Stephens Wealth Management, which has offices in San Francisco, New York City, Idaho and New Jersey. “But the consensus is that we could have an economic growth rate of 6% this year and another 5% next year. Those are big numbers.”
That growth will turn into increased market earnings, particularly in the housing and auto sectors because of pent up demand, Link said. “The stimulus packages are many times larger than anything we saw in 2008. The consumer is in better shape than people realize.”
However, 30% of the people in the United States are not participating in the recovery, which has to be addressed by policy makers, Williams explained.
One way to address that inequality is to put policies in place that attack the unemployment problem, said Garretty, positing that there are far more people unemployed than the officially estimated 10 million.
Elsewhere, she added, the stimulus packages that have passed—and the current proposal that will likely pass—will cause a small increase in inflation but it should not be a problem if it is a gradual increase.