Inertia

Inertia cuts both ways. We've been involved with a few situations towards the end of the year which demonstrate this.

Most financial decisions don't come with a deadline or sense of urgency - unless it is December and related to year-end tax planning. Some opportunities outright go away when the calendar turns over to 1/1/25.

One prospective client was inclined to remain in an outdated mutual fund portfolio with no ongoing tax management. They had a planning window to tax advantage of the 0% capital gains rate, followed by a series of Roth conversations and/or intentionally taxing distributions from retirement accounts. It was a textbook retirement income planning opportunity. Inertia held them back due to a previous relationship with another planner who wasn't inclined to take advantage of these opportunities. Inertia turned out to be a real negative here. We had another who wanted to stay in CD's instead of using T-bills, resulting in several thousand dollars in state income tax savings. Inertia can be costly.

But not taking action can also be beneficial.

Separately, another advisor had a prospective client doing aggressive Roth conversions to fill their 24% marginal bracket. Roth conversions work well when tax arbitrage is taken advantage of (i.e. convert now at the 12% marginal rate, because income in the future is projected at the 22% marginal rate.) In this case, since there was no foreseeable jump in income, the client was always projected to stay well within the 12% marginal bracket. Pontificating that taxes are going up in the future may or may not be true, but it's not worthwhile to solely base a recommendation on that. More inertia to stay put (only do conversions that fill the rest of the 12% bracket) would have been most helpful here. Inertia tends to be great when the market is down and there is an inclination to sell investments.

The correct answer whether or not a piece of financial advice is appropriate is, almost always, 'it depends.' Finding the right advice to sort through how to pick and choose your spots is invaluable.

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^{The content in this article was prepared by the article’s author and is not intended to provide specific advice or recommendations for any individual. Voya Financial Advisors does not endorse its content, and the views expressed may not necessarily reflect those held by Voya Financial Advisors.}  

^{Neither Voya Financial Advisors nor its representatives offer tax or legal advice.  Please consult with your tax and legal advisors regarding your individual situation.}

^{Roth conversions are irrevocable and are taxed as ordinary income in the year the conversion takes place.}