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Tax-loss harvesting can be a ‘silver lining’
Stock market volatility often presents the chance to leverage a popular tax strategy, experts say.
“Tax-loss harvesting is the name of the game right now,” said certified financial planner Sean Lovison, founder of Philadelphia-area Purpose Built Financial Services.
The move involves selling your losing brokerage account assets to claim a loss. When you file your taxes for 2025, you can use those losses to offset other portfolio gains.
Once investment losses exceed profits, you can use the excess to reduce regular income by up to $3,000 per year. After that, you can carry additional losses forward into future years to offset capital gains or income.
“It’s looking for a silver lining on a pouring, rainy, cloudy day,” said Lovison, who is also a certified public accountant.
You can also use tax-loss harvesting to rebalance your portfolio, he added.
Weigh Roth conversions
You may consider so-called Roth individual retirement account conversions amid the stock market dip, according to certified financial planner Judy Brown at SC&H Group in the Washington, D.C., and Baltimore area.
Roth conversions transfer pretax or nondeductible IRA funds to a Roth IRA, which can start tax-free growth. The trade-off is that you’ll owe regular income taxes on the converted balance.
After transferring funds to a Roth account, it’s possible to capture tax-free growth when the stock market eventually rebounds and the assets recover, she explained.
“But it has to be done fast,” said Brown, who is also a certified public accountant.
Of course, you need to project how the additional income could impact your taxes for the year, experts say.
Roth IRA contributions ‘could be missed’
If you’re eager to build tax-free retirement savings, you can still make Roth IRA contributions for 2024 until the federal tax deadline on April 15. Investing now could also be a chance to “buy the dip” while asset prices are lower, experts say.
For 2024, you can contribute up to $7,000 if you’re under 50, or $8,000 if you’re 50 or older, assuming you have at least that much “earned income” from a job or self-employment. You also must meet the income requirements.
“That’s definitely an opportunity that could be missed,” said Lovison. “It’s one more task in the middle of everything that’s going on.”