Three Bear Market Strategies

Whether the markets are rising or falling, there is almost always something you can do to bolster your finances.

The following planning strategies work by far the best when the markets are falling.

Make 529 College Savings Contributions

Do you have children or grandchildren who are going to study? If so, bear markets are a good time to contribute to 529 plans. The reason? Contributions to 529s are made with after-tax money, but profits made in the plans are not taxed if they are used for qualifying educational expenses. Historically, market returns that come from bear markets have been better than average.

3 Bear Market Financial Strategies

Escape the Mutual Funds Hostage Opportunity

Mutual fund tax hostages own mutual funds in their taxable accounts that they would like to sell, but not because of the capital gains tax they would owe. So they are locked into holding the funds, paying fees and subject to dreaded annual distributions of capital gains. Market declines present great opportunities to escape such funds with a lower capital gains tax and to replace them with more tax-efficient alternatives, such as exchange-traded funds (ETFs) or portfolios of individual securities.

Consider a Roth conversion

A Roth IRA conversion is done by transferring (“converting”) your IRA assets to your Roth IRA, where gains and distributions are not taxable. You do, however, owe tax in the current year on the amount of the Roth conversion. Now let’s say the bear market has lowered your IRA from $100,000 to $80,000 this year. If you make a Roth conversion now, you’ll be taxed on $80,000, not $100,000, and the money will be in a more tax-efficient home (your Roth) when the markets recover.

Develop a comprehensive financial strategy Strategies such as those described above are not appropriate in all circumstances and should only be considered in the context of a broader financial plan. These suggestions are for informational purposes only and are not financial advice.

Contact us if you would like to discuss anything about your investments or the markets.Call us at: 619-319-0520Email Peter ThomsOr Schedule a meeting with us.

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