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In times of market volatility, smart tax strategies can turn uncertainty into opportunity. EP Wealth’s Christopher Estrada, CFP®, shares proactive moves like tax-loss harvesting, managing tax-advantaged accounts, Roth conversions, and more to potentially strengthen your long-term financial plan.
The Upside of Down Markets: Tax Smart Moves You Can Make When Markets are Volatile
When markets are volatile, it’s natural to want to do something. To react in proportion to the world around you. While long-term investors know not to panic, that doesn’t mean doing nothing. Volatility creates windows of opportunity, especially for smart tax planning. That said, there are ways to be proactive that can potentially help save you on taxes in the long run.
I’ll lay out a few strategies that I’m talking with my clients about, including making the most of your tax-advantaged accounts, harvesting tax losses, Roth Conversions, adjusting estimated tax payments to put more money in your pocket, and strategically exercising stock options.
Frontload Tax-Advantaged Contributions
Let’s get the easy stuff out of the way first. If you can afford to increase your retirement contributions, you not only buy into investments you like at lower levels, but you can capture the rebound in your accounts with tax benefits.
Max out your 401ks, Backdoor Roth IRAs, HSAs, and 529s. If your workplace allows for a Mega Backdoor Roth, that can be a great place to divert large amounts of funds, and all the growth will be tax-free.
Harvest Losses to Offset Gains
Nobody loves a red portfolio. But, if you hold taxable investments, losses aren’t just paper—they can have real value to you come tax time.
Selling stocks with significant losses can give you a capital loss, which can reduce your taxable income by up to $3,000 and be used to offset future gains during the eventual recovery and beyond.
This one can be tricky, though. If you sell a stock at a loss and buy it back within 30 days, the Wash Sale Rule disallows the loss. To stay invested, consider buying a similar ETF (e.g., a tech index for AAPL or GOOG) and repurchase the original stock after 30 days.
Convert to Roth While Values Are Down
If you’re in a lower-income year (job change, parental leave, sabbatical, "funemployment"), this can present an opportunity. Moving funds to a Roth IRA now, while you’re in a lower tax bracket, can help those funds grow tax-free for the rest of your life. Doing it while markets are down helps you preserve more of the upside—tax-free.
One thing to note is that you will owe taxes on the amount you convert. You should plan to have cash set aside to cover this tax bill.
Once inside the Roth, tax-free growth, tax-free withdrawals, and zero RMDs. Your future self will thank you (and so will your heirs).
Adjust Estimated Tax Payments
If you’re paying quarterly taxes, your accountant likely calculated those payments based on your previous year’s income. With the market down, your income might be as well. You might be able to lower your estimated payments and put more money in your pocket in the meantime.
If you get income through RSUs, bonuses tied to company performance, or own a business that might be experiencing a slowdown, talk to your tax advisor about ways to lower your payments to help keep you afloat. Uncle Sam doesn’t need your money yet, keep it working for you!
Exercise Stock Options While Valuations Are Low
Many of my clients in the Bay Area have stock options or some form of compensation tied to their company’s stock. If you have cash on the sideline and believe in your company’s long-term prospects, this could be a good time to lean into the tax advantages you get from your options.
Consider exercising your ISOs, making 83(b) elections and planning to pay the upfront tax bill now while the stock price is lower. This can allow you to get closer to Long Term Capital Gains treatment, lower AMT bills in the future, and capture more upside with a lower tax bill today.
Final Thoughts
Markets are unpredictable, but your plan doesn’t have to be. Volatility can be unsettling, but with the right tools, you can make confident, forward-looking moves—even in choppy seas.
The market’s future is uncertain, but your response doesn’t have to be. These strategies are designed to help you stay grounded, stay proactive, and make volatility work for you. If you’d like help applying any of these to your situation, let’s connect.
Contact EP Wealth today to learn more.
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- Request an appointment with an EP Wealth Advisor when you have a minimum of $500,000 in investable assets – which includes qualified retirement plans (IRA, Roth IRA, 401(k), taxable brokerage, cash (savings / checking) and CDs. Investable assets do not include your home, vehicles, or collectibles.
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- Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.
- All investment strategies have the potential for profit or loss. Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that any specific investment strategy will be suitable or profitable for a client’s portfolio. The risk of loss can never be eliminated even if working with a professional.
- Laws vary by state. The information presented herein is intended to be general in nature and may not apply to your state of domicile. Please consult local legal counsel to determine the best practices for your state.
- Please consult with a CPA, tax professional, and/or attorney regarding your specific situation before implementing any of the strategies referenced directly or indirectly herein.
