Pub. 10 2020 Issue 2

17 PUB. 10 2020 ISSUE 2 had sold stocks when the market was down (thereby realizing a loss) and then repurchased stocks in the future when the market had sufficiently recovered. What if staying the course isn’t an option? There are a few scenarios in which an investor seemingly must sell a stock when markets are down because they have no other choice. This may be due to immediate cash needs or required minimum distributions (RMDs) from a retirement plan or IRA. What is an investor to do in these two circumstances? Let’s begin with an immediate cash need. Consider the fol- lowing alternatives: 1. Consider using other sources of cash, such as checking ac- counts, savings accounts, money market accounts, or other cash equivalents if they are available. You can plan to replenish these accounts in the longer term by selling stock when the stock market has sufficiently recovered. 2. Determine if the immediate cash need has any degree of flex- ibility. Can it be reduced or postponed in the short term? Even fixed expenses such as mortgages, debt payments, property tax- es, income taxes, and other ironclad obligations can sometimes be temporarily suspended or deferred during extremely chal- lenging times. Advise customers to work with their financial institution/lender, local tax authority, or income tax preparer before making any changes to their payment schedule. Never assume that skipping a payment is permissible. 3. Consider using a line of credit or other lending facilities in the short run. Depending on the size of the cash need and length of time before a sufficient stock market recovery occurs, the interest cost on the short-term use of a line of credit can be dramatically lower than the dollars lost by taking a significant stock loss to generate cash. As for required minimum distributions (RMDs) from a retire- ment plan or IRA, consider the following attractive options: 1. Determine if your retirement plan or IRA is eligible for RMD suspension in 2020. Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted in late March 2020, RMDs on IRAs, Roth IRAs, Inherited IRAs, 401(k) plans, and many other retirement accounts are waived for the calendar year 2020. However, a notable exception to this RMD waiver is defined benefit plans. Recommend customers speak with their wealth adviser or tax preparer to see whether it’s possible to skip their RMD this year. 2. If the CARES Act does not apply, or in future years when RMDs are required again, recommend that customers request that their financial institution make an in-kind distribution of securities equal to the RMD amount from their retirement plan or IRA to another (nonretirement) investment account to satisfy the RMD rule. By distributing securities in share form rather than selling to cash and then distributing the proceeds, the customer can avoid realizing a loss until the investments have recovered in value. While “staying the course” is often the superior course of action, individual circumstances and the ability to do so can certainly vary. Customers should always consult with a wealth adviser first to determine what is best for their unique situation. w Nate Birkholz is Vice President and Managing Director of Private Client Services at Bankers Trust. He joined the bank in 2017 as president of BTC Trust Company of South Dakota and has over 20 years of experience working with trusts, estates and investment services. He can be reached at NBirkholz@BankersTrust.com. There are a few scenarios in which an investor seemingly must sell a stock when markets are down because they have no other choice.