Sierra Pacific Private Wealth recently hosted: Planning Beyond the Portfolio: QOZ 2.0, Roth Conversions & Tax-Efficient Wealth Strategies presented by Griffin Capital, an educational webinar with Bill Witte, Senior Vice President of Wealth Solutions at Griffin Capital, discussing planning opportunities involving Roth conversions, private real estate investments, and the evolving Qualified Opportunity Zone (QOZ) program.
The discussion focused on how investors may evaluate tax-efficient strategies alongside their broader investment, retirement, and liquidity goals. Bill also explored how certain private investment characteristics may create unique planning considerations for Roth conversions and how upcoming changes to the Qualified Opportunity Zone program could affect investors with realized capital gains.
Throughout the webinar, one theme remained consistent: tax benefits should not be evaluated in isolation from the underlying investment, its risks, liquidity, and an investor's overall financial plan.
Key Takeaways from the Webinar
Roth Conversions Can Be Part of a Multi-Year Tax Strategy
A Roth conversion involves moving assets from a tax-deferred retirement account, such as a Traditional IRA, into a Roth IRA. The amount converted is generally included in taxable income for that year, but qualified Roth IRA withdrawals can potentially be tax-free in retirement.
One of the questions addressed during the webinar was whether a large Roth conversion needs to happen all at once.
Bill explained that Roth conversions can potentially be spread across multiple tax years, allowing investors and their advisors to evaluate how much to convert each year based on factors such as:
- Current and projected tax brackets
- Expected future income
- Available cash to pay the resulting tax liability
- Retirement timing
- The value of the assets being converted
- Broader estate and legacy-planning objectives
Rather than viewing a Roth conversion as a one-time decision, investors may benefit from evaluating it as part of a multi-year tax and retirement planning strategy.
Private Investments May Create Unique Roth Conversion Planning Considerations
During the webinar, Bill highlighted its Griffin Capital Development Partners Fund III (GCDP3), a private real estate strategy focused primarily on rental housing development.
Bill explained that limited partnership interests in certain private investments may have different valuation characteristics than publicly traded investments because investors generally cannot freely sell the position and may have limited control over the underlying partnership.
For GCDP3, specifically, Bill discussed a third-party valuation process that currently reflects a 30% discount to the contributed value of the limited partnership interest based on factors including lack of marketability and lack of control.
In the hypothetical example presented during the webinar, an investor contributing $100,000 through a Traditional IRA could have a limited partnership interest valued at $70,000 for conversion purposes under that valuation.
The investor could then potentially evaluate converting that interest into a Roth IRA and paying taxes based on the applicable fair-market valuation.
Importantly, valuation discounts are highly fact-specific and should not be assumed to apply to every private investment. Investors considering this type of strategy should coordinate closely with their financial advisor and qualified tax professionals.
The Investment Should Com Before the Tax Benefit
A particularly important point from the presentation was that an attractive tax strategy cannot compensate for an unsuitable investment.
Before discussing Roth conversion opportunities, Bill reviewed the underlying investment strategy of GCDP3, which primarily focuses on:
- Ground-up multifamily development
- Build-to-rent communities
- Select preferred-equity opportunities
- Opportunistic acquisitions of recently developed rental properties
Bill discussed several trends it believes may support demand for rental housing, including challenges surrounding housing affordability, barriers to homeownership, housing shortages, and declining new rental-housing deliveries in certain markets.
The fund is targeting a three-to-five-year investment period and mid-teens returns; however, these figures represent targets rather than guaranteed investment results, and private real estate investments involve meaningful risks and illiquidity.
The broader takeaway for investors is that tax considerations should complement the investment decision—not drive it by themselves.
QOZ 2.0 Creates a New Framework for Managing Realized Capital Gains
The second half of the webinar focused on Qualified Opportunity Zones, originally established under the Tax Cuts and Jobs Act of 2017.
Under the existing Opportunity Zone framework, investors have been able to reinvest eligible realized capital gains into Qualified Opportunity Funds, or QOFs, and potentially receive certain tax benefits when program requirements are satisfied.
Beginning in 2027, the next phase of the program—often referred to as QOZ 2.0—introduces several significant changes.
Under the new framework, eligible gains invested in a Qualified Opportunity Fund may potentially receive:
- A rolling five-year deferral of the original eligible capital gain
- A 10% basis increase after the five-year holding period for qualifying investments
- A 30% basis increase for qualifying rural Opportunity Zone Fund investments
- Potential exclusion of qualifying QOF appreciation after satisfying the required 10-year holding period
This may make Opportunity Zone planning particularly relevant for investors experiencing a significant taxable liquidity event.
Examples discussed during the webinar included gains resulting from:
- Selling highly appreciated or concentrated stock
- Selling a business
- Selling investment real estate
- Other transactions generating eligible capital gains
The 10-Year Holding Period Is an Important Consideration
While the potential tax benefits of a Qualified Opportunity Fund can be meaningful, the webinar emphasized that investors need to be comfortable with the strategy's long-term and illiquid nature.
To potentially receive the full long-term tax benefits discussed during the presentation, an investor generally needs to be prepared for a holding period of at least 10 years.
Bill highlighted several considerations investors should evaluate before making an Opportunity Zone investment, including:
- Real estate development and execution risk
- The fund sponsor and development partners
- Liquidity needs over the investment period
- The ability to remain invested for 10 years
- Future tax obligations associated with the originally deferred gain
- Broader economic and real estate market conditions
The webinar also emphasized the importance of planning ahead for the tax liability that eventually becomes due on the original deferred gain rather than assuming the investment itself will necessarily provide sufficient liquidity to cover it.
QOZ 2.0 May Be Particularly Relevant Following a Major Liquidity Event
Opportunity Zones may warrant consideration when an investor has recently realized—or expects to realize—a substantial capital gain.
For example, an executive with a highly appreciated company stock position may want to diversify but could face a significant capital-gains tax liability when shares are sold.
Similarly, a business owner selling a company or a real estate investor selling appreciated property could potentially face a large taxable gain.
A Qualified Opportunity Fund may provide another planning tool to evaluate alongside strategies such as charitable giving, tax-loss harvesting, direct indexing, or simply recognizing the gain and reinvesting the proceeds.
The appropriate strategy depends heavily on the investor's individual circumstances, including liquidity needs, risk tolerance, investment horizon, tax situation, and long-term financial goals.
Holistic Planning Remains Critical
A recurring theme throughout the webinar was that Roth conversions and Qualified Opportunity Zone investments should not be evaluated as standalone tax strategies.
Decisions involving these strategies may affect or be affected by:
- Retirement planning
- Current and future income taxes
- Investment allocation
- Liquidity needs
- Estate and legacy planning
- Concentrated Stock diversification
- Cash-flow planning
- Long-term portfolio objectives
At Sierra Pacific Private Wealth, we believe these types of strategies are most useful when evaluated within a comprehensive financial plan.
For one investor, a Roth conversion or Opportunity Zone investment may potentially complement their broader strategy. For another, the costs, risks, liquidity requirements, or tax consequences may make a different approach more appropriate.
The goal is not simply to identify strategies that can reduce taxes, but to determine whether those strategies make sense within your complete financial picture.
Download Webinar Materials
Presentation materials from the webinar are available below:
- Griffin Capital — Griffin Capital Development Partners Fund III, L.P.
- Griffin Capital — What You Need to Know About Opportunity Zone Funds
- YouTube Replay
Learn More
If you'd like to discuss how Roth conversion planning, Qualified Opportunity Zones, or other tax-aware strategies may—or may not—fit within your current financial situation, the Sierra Pacific Private Wealth team is happy to connect.
Schedule a conversation with our team to review your financial picture and explore which strategies may be appropriate for your goals.
This material is provided for educational and informational purposes only and should not be construed as individualized investment, tax, or legal advice. Tax laws and regulations are complex and subject to change. Investors should consult with their financial, tax, and legal professionals regarding their individual circumstances. Alternative investments, including private real estate and Qualified Opportunity Funds, involve risk, including illiquidity and the potential loss of principal. Targeted returns and other projections are not guarantees of future results.