Mark Washburn

Managing Portfolio and Retirement Benefits

How CPAs can provide calm during turbulent times.

November 13, 2008
by Mark Washburn, CPA/MST

Uncertainty creates opportunity. The more uncertainty, the more your role as the trusted CPA advisor requires you to be the calming force during such times. Today’s volatile times present opportunities for the CPA community to enhance our image as calm, rational advisors.

Here are some top areas in which a CPA’s advice can help counter the frenzy created by speculative investors:

  1. Reinforce with your clients the need to save more. To be sure, saving money will not stimulate the economy. But a little advice to the public to tighten their belts will not cause the economy to tank. The old tried-and-true advice to keep about 90 days of cash reserves available is still worthy advice. People with savings feel more secure and can adapt to changing situations better and faster than those with no substantive savings.
  2. Advise clients to be smart about managing their personal portfolios. Panic selling while stock prices are falling to avoid the bottom should be restrained. If your clients believed in their portfolio holdings before the recent stock market plunge, why rush to sell? Quality investments generally respond to market fluctuations with less volatility. Remember too, that losses in excess of gains can only be used in increments of $3,000 against ordinary income. Large capital loss carryovers may take years to use in full, under these current loss limitations.
  3. Remember to suggest contributing to an IRA to the maximum extent possible. The amounts available depend on several factors, such as your client’s age and whether they and/or their spouse are eligible to participate in a plan as an employee. For 2008, the IRA contribution limit has been increased to $5,000, a $1,000 increase from the 2007 IRA contribution limit of $4,000. Contributions to individual IRA accounts can be made up to April 15, 2009. For individuals who are 50 or older, an additional “catch-up” contribution of $1,000 can be made, thus raising the total contribution amount for individuals age 50 or older to $6,000. To be eligible to make contributions to a traditional IRA, an individual must have earned income. In order to receive a current year tax advantage, individuals cannot exceed certain deduction rules. Individuals who file using the Single filing status are permitted to full deductions (up to the contribution limits) if not covered by a retirement plan at their workplace, regardless of the amount of their income or, if covered under a plan at work, whether participating or not, their contribution is fully deductible if their income is less than $53,000. This amount has been increased to $85,000 for taxpayers using the Married/Filing Jointly filing status if covered by a plan at work, again whether participating or not. For taxpayers who are not covered under a plan at work, but whose spouses are covered under a retirement plan, whether participating or not, a full deduction is allowed to the taxpayer if adjusted gross income does not exceed $159,000.
  4. Suggest making withdrawals from retirement accounts
    (IRA, 401(k) or 403(b) plans) only as a last resort if the client is not yet 59 1/2.
    Withdrawals prior to age 59½ are subject to an early withdrawal penalty. This penalty is 10 percent of the amount withdrawn and is in addition to the income tax you will pay on the withdrawal. Withdrawals, if absolutely necessary, can be mitigated by several factors. For example, the 10 percent early withdrawal penalty can be waived if the withdrawal is for one of several approved reasons. Also, the penalty can be waived if the amount withdrawn is restored within 60 days of the date of withdrawal. Therefore, if the need for the funds is only temporary, use them for the temporary purpose but re-deposit the amount withdrawn within 60 days of the date of withdrawal and no penalty will be imposed. Even if the entire amount cannot be re-deposited, any amount which can be re-deposited will cause the actual withdrawn amount to be less, reducing both the 10 percent penalty amount as well as the amount of additional income tax.
  5. Consider rolling over the retirement account into an IRA, when leaving an employer with whom your client had a 401(k) or
    403(b) retirement plan.
    Such rollovers continue the tax deferred status of the original contributions plus any gains (interest earned, appreciation in value, capital gains). Most employer plans are restricted as to the breadth of investments. Rolling over the funds into an IRA removes such restrictions and provides a virtually limitless smorgasbord of investment opportunities.


With Congress unable or unwilling to act proactively and aggressively in protecting Social Security, self-reliance becomes more important. Clients who lack the ability or the discipline to manage their retirement funds seek professional advice. You, as the most trusted financial advisor in their arsenal, need to be prepared to provide advice and demonstrate knowledge in these critical, personal areas of your clients’ lives.

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Mark Washburn, CPA/MST, is a Senior Lecturer in Accounting at The University of Texas at Tyler. He teaches both Individual and Corporation tax courses at the undergraduate level. He is a certified public accountant licensed in Texas and holds a Master of Science in Taxation from The University of Texas at Arlington.