With the current market uncertainty, the last thing on most taxpayers’ minds is tax planning. However, amidst all these economic challenges lies the potential for tax-saving activities available to those willing to plan accordingly. When the market dips, tax opportunities rise. Here is what you need to know.

Tax opportunities when the market dips

In a turbulent market, transferring securities during a market dip can save a significant amount in taxes. So if part of your retirement plan is to balance your funds between pre-tax and after-tax obligations, now might be the time to act.

• Recall that traditional IRA accounts, 401(k)s, and similar accounts must pay income tax upon fund withdrawal, whereas Roth IRA and Roth 401(k) accounts use pre-tax dollars, and there is no tax on future earnings as long as the funds are in the account for five years
• There’s no limit to the amount you can convert from a traditional IRA or 401(k) into a Roth IRA
• Current tax laws expire next year, so if Congress doesn’t make changes, there may be higher tax rates
• The old ability to reconvert stocks from a Roth back into a traditional IRA or 401(k) is no longer possible

Say you have a set of stocks once worth $100,000 but are now worth $70,000. This can now be converted with $30,000 less in taxable income. If you plan to hold the stock and believe it will recover in the long run, you have a tax savings opportunity. Additionally, there will no longer be a tax on future appreciation.

Make your next tax move

This tax savings idea may not be suitable for everyone. The stocks could decline further, creating an opportunity cost. So, if considering this tax tip, it should be managed in conjunction with the appropriate planning and investment expertise. But if you were considering a balance of your retirement funds between taxable and tax-free sources, you may have a tax planning opportunity at your doorstep.

Contact our RRBB advisors if you have any questions or would like to determine if this strategy is right for you.