Is Now the Time to Get Back Into Stocks?

About Roth Conversions

The stock market collapse means you can now convert to a Roth IRA at a lower tax cost than you could at the beginning of the year as your conversion amount will be smaller.

Be aware there are income restrictions on Roth conversions. The limit is $100,000 in modified adjusted gross income for most taxpayers.

Conversions from a former employer's retirement plan, such as a 401(k) account, are also allowed starting this year.

If you converted early in the year and now are looking at paying a tax bill on a diminished account, you may want to consider what's called a Roth IRA recharacterization.

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The rules for both Roth conversions and recharacterizations are too complicated to provide in detail here, but they are worth your time researching. For larger accounts, it's probably worthwhile to seek the help of a financial planner or tax accountant.

Pay down debt. Finally, no matter what happens next with stock prices, there is one way to earn a guaranteed rate of return that will beat what you can earn on an FDIC-insured bank account or CD.

And that is to pay down debt, whether it's high-cost credit card debt or even a tax-deductible home mortgage.

Paying off a loan carrying a 6 percent interest rate amounts to a guaranteed 6 percent rate of return in the savings you realize. If it's tax deductible debt, then the actual rate of return may be less. But in times like these it's still a good move, particularly if you're too frightened to put available cash in stocks right now.

Any time you pay down debt, you improve your financial position and put yourself in a better position to withstand any economic shocks that await us.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

David McPherson is founder and principal of Four Ponds Financial Planning in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at david@fourpondsfinancial.com.