Experts suggest that the current turbulence in the stock market offers a unique opportunity to take advantage of a widely-used tax strategy.
“Tax-loss harvesting is the approach to take at the moment,” says Sean Lovison, a certified financial planner and the founder of Purpose Built Financial Services in the Philadelphia region.
This strategy involves selling the losing assets in your brokerage account to register a tax loss. When it’s time to file your 2025 taxes, these losses can be used to offset gains from other parts of your investment portfolio.
When your investment losses are greater than your profits, you can apply the additional losses to decrease your regular income by up to $3,000 per year. Any remaining losses can be carried forward to offset future capital gains or income.
“It’s like finding a silver lining when it’s a gloomy and rainy day,” Lovison shares, who is also a certified public accountant. He notes that tax-loss harvesting can also serve as a means to rebalance your portfolio.
During this period of stock market decline, it’s also worth considering Roth IRA conversions, according to Judy Brown, a certified financial planner with SC&H Group, covering both Washington, D.C., and Baltimore.
Roth conversions involve transferring pre-tax or nondeductible IRA funds into a Roth IRA, setting the stage for potential tax-free growth. The trade-off is that you will owe regular income taxes on the converted amount.
Brown explains that moving the funds to a Roth account allows you to benefit from tax-free growth when the market eventually rebounds, recovering the value of those assets. “However, timing is crucial,” she advises, highlighting her credentials as a certified public accountant.
Naturally, you’ll need to assess how this additional income could affect your overall taxes for the year.
For those looking to boost their tax-free retirement savings, there’s still time to make Roth IRA contributions for 2024 until the federal tax deadline on April 15. Now might also be a strategic moment to “buy the dip” while asset prices are lower, as experts point out.
For 2024, eligible individuals under 50 can contribute up to $7,000, and those 50 or older can contribute up to $8,000, provided they have earned income from work or self-employment that meets or exceeds those contributions. Income limits also apply.
“That’s an opportunity not to be overlooked,” Lovison emphasizes. “It’s another important step amid everything else that’s happening.”
