3 moves retirement savers can make now to profit from the stock market turmoil

Every crisis is an opportunity. The massive turmoil on financial markets so far this year is no exception. Here are three things that every middle-class American can do with their 401(k), IRA or other retirement plans, right now, to take advantage of what’s going on.

Read: Don’t panic about your 401(k)

Do a Roth conversion.

Individual retirement accounts, simple tax-sheltered retirement accounts approved by the IRS, come in two types: Traditional IRAs, where you get a tax break up front, at the time you make the contribution, and Roth IRAs, where you get the tax break at the end, when you make the withdrawal. You can convert a traditional IRA to a Roth at any time by filing a simple form at your financial firm. You will owe income taxes on the amount converted by April 15 of next year. There is a long, vexed and contentious debate about which one is better and when. I’m not getting into that here. However, if you have wanted to convert a traditional IRA to a Roth, this is a great time to do it. That’s because when you do a conversion you will owe income taxes on the value at the time of conversion. The lower the current value, the lower your tax bill.

2. Rebalance

There’s some good news hidden in this broad-based selloff: Pretty much everything has gone down. So if you came into the year owning, say, too much in large company U.S. stocks like the S&P 500, and too little in smaller company stocks, foreign stocks, real-estate investment trusts, and bonds, this is your lucky moment. You can do a do-over for free or at least reasonably cheap: Pretty much everything (except commodities and energy stocks) is down.

It’s not perfect, of course, because things have fallen different amounts. Nonetheless, among major stock indexes the S&P 500
has fallen 21%, while international developed markets
are off 19% and emerging markets
15%. U.S. small-caps as measured by the S&P 600


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