3 Tax-Saving Strategies in This Market Sell-Off | Personal-finance

Market downturns present an attractive opportunity for Roth conversions. Since account values ​​are falling, the amount you have available to convert is less than it was when the market was doing well. In these circumstances, if you choose to convert money to a Roth account, you will end up including a lower amount as ordinary income on your tax return, thus paying less tax on the conversion.

Imagine you have $100,000 sitting in a traditional IRA, and all of the money is considered “pre-tax” (meaning you haven’t paid any taxes on the money yet). If the market crashed 40%, you would have $60,000 left in the account.

If you were to make a Roth conversion after your account declined, you would add $60,000 to your ordinary income for the year, rather than the $100,000 you would add if you initiated the conversion when the market was higher. The big advantage here is that you only have to pay tax on $60,000 and you can keep the same number of shares you had in your account before tax. When the market recovers, all the money is tax-free forever.

2. Offset capital gains with capital losses

If you’ve been meaning to sell a stock for a while and the market has headed south, you may be looking for a good opportunity to finally do so, while lowering your tax bill at the same time. .

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