I know, I know. This market is trash!
If you are like most people, your portfolio has been taking a beating this year. Also, you may be wondering when market conditions will improve.
In the meantime, there are some things you can do to take advantage of the situation.
1.) Tax loss harvesting
If you have positions that you believe are not going to come back, or you want to do some asset allocation adjustments, this could be the perfect time. Remember, if you have a capital loss at year end, you can use up to $3,000 against your ordinary income.
This can also be great if you have some stock that you have held for a long time that has appreciated significantly and you want to part ways with some of it to diversify.
2.) Look into Roth Conversions
I know you have heard me talk about this before, but Roth conversions are ideal in this type of market. This is because your pre-tax IRA has a lower account balance and thus if you convert your entire account, you will owe less in taxes, since any amount you convert is ordinary income.
If you live in a low- or no-income tax state, this is an amazing opportunity to investigate Roth conversions. Just remember, do your analysis first because once you do it, you can not turn back.
Remember, any money in the Roth grows tax-FREE and at retirement age (59.5 or later), you can take money out tax-FREE!
3.) Revaluate your asset location strategy (link to previous webinar last month)
If you need to make asset moves, a perfect environment to do that is NOW! Why?
It’s a great time because you can sell securities and hopefully not recognize a significant gain, or you have offsetting losses you can use. It’s a lot more difficult to do this when everything has appreciated and you have to take into account a significant tax bill.
4.) Put the pieces together
So the neat thing is you can really do some amazing tax strategies if you combine some of the above items. One example is if you get into a position where you will be able to use a $3,000 loss against your ordinary income, you can combine that with a $3,000 Roth conversion!
That is basically like being able to convert $3,000 to your Roth TAX-FREE!
Depending on your situation, there could be other potential items that you can look into to pickup additional tax savings. The key is that you need to take opportunities like this and use them to your advantage so that you can really save on taxes and position your portfolio for long-term tax efficient growth.
Warren Buffet: “I’d rather buy a fantastic company at a fair price than a fair company at a fantastic price”.