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Tax Loss Harvesting & Roth Conversions – Ideas For A Down Year

By Gary Walker, Newburyport.Com Correspondent
Gary Walker serves as New England Sales Director, Founding Partner and Wealth Manager for Seacoast Wealth Management of Steward Partners located in Portsmouth, New Hampshire. Gary brings 20 years of experience in creating financial planning strategies, asset allocation models as well as support with corporate retirement plans. Gary’s practice focuses primarily on high-net-worth individuals and families as well as business owners. Gary works with clients by first listening to clients’ financial situation, goals and aspirations. He then assists clients in designing a long-term investment plan based on the fundamentals of asset allocation, and provides guidance in choosing investments best suited for a client’s needs. Gary earned his BS in Accounting and Finance from Worcester State College. He also earned the designation of Chartered Retirement Plans Specialist (CRPS) from the College of Financial Planning. Gary, his wife Kim and two children, Grayson and Kolby, reside in Kensington, New Hampshire. In his free time, he enjoys golfing, fishing and volunteer coaching for youth sports.
Seacoast Wealth Management of Steward Partners
Tax Loss Harvesting Roth Conversions, Seacoast NH & North Shore MA

Tax Loss Harvesting and Roth Conversions are two strategies that can help many of our Seacoast NH and North Shore MA clients make the best of a down year. 2022 has presented many challenges in the market such as inflation, interest rates, geopolitical conflict and lingering covid restrictions. As a result, we have seen bouts of volatility and ultimately negative year-to-date returns for both equity and fixed income indexes. While years like this can be tough to stomach, it is important to know they can also create opportunities that can be taken advantage of with prudent planning. During these years, many investors may elect to hold their investments and others may allocate to cash out of fear. It is certainly hard to criticize a buy-and-hold investment philosophy, but there may be some opportunities that investors are missing by taking this approach. Please read below about Tax Loss Harvesting and Roth Conversions, two strategies Seacoast Wealth Management of Steward Partners is implementing with clients to take advantage of down markets like we have seen so far in 2022.

Tax-loss Harvesting:

Investors with taxable (non-qualified) investment accounts can implement a strategy called tax loss harvesting where a security is sold at a value less than what it was purchased for, creating a realized capital loss. These losses can be used to offset any realized capital gains you may have in your accounts this year – mitigating your tax bill. In a situation where an investor does not have any realized capital gains or the losses generated are in excess of capital gains during the year, investors can carry those losses forward to offset any potential gains in future years. While it may seem counterintuitive to sell a security at a loss, it can enhance the tax-efficiency of your portfolio which, in our view, is worthwhile to explore.

Roth Conversions:

Traditional IRA assets are a cornerstone of many portfolios due to their accessibility and tax advantages. Some of these advantages are due to the fact they are funded with pre-tax dollars and in turn, are deducted from taxable income for that year. The assets will grow tax-deferred in the account and the distributions are taxed at ordinary income – penalty free if taken after age 59.5.  In down years like we have seen in 2022, it may make sense to conduct a Roth IRA Conversion while the account value is suppressed. With this strategy, an investor can convert all or a portion of their traditional IRA into a Roth, paying ordinary income tax on the amount converted. The benefit of implementing this strategy would be to take advantage of the tax-deferred growth and tax-free distributions after age 59.5. On top of that, Roth IRA’s are not subject to Required Minimum distributions at age 72, allowing investments to grow tax-deferred over an investor’s lifetime.

***As financial advisors, we are not licensed to give tax advice, so we recommend consulting a tax advisor before implementing these strategies***

While this year’s market has presented challenges for even the most steadfast investors, there are also opportunities that have been created that are worth exploring. If you have not had the discussion on either of the above strategies or would like to know more, please reach out to us for a seacoastwealthmanagement@stewardpartners.com for a no-cost consultation.

When Steward Partners Investment Solutions LLC, its affiliates and Steward Partners Wealth Managers provide “investment advice” regarding a retirement or welfare benefit plan account, an individual retirement account or a Coverdell education savings account. Steward Partners is a “fiduciary” as those terms are defined under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and/or the Internal Revenue Code of 1986 (the “Code”), as applicable. When Steward Partners provides investment education, takes orders on an unsolicited basis or otherwise does not provide “investment advice”, Steward Partners will not be considered a “fiduciary” under ERISA and/or the Code. Tax laws are complex and subject to change. Steward Partners does not provide tax or legal advice. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a Retirement Account, and (b) regarding any potential tax, ERISA and related consequences of any investments or other transactions made with respect to a Retirement Account.

Securities and investment advisory services offered through Steward Partners Investment Solutions, LLC, registered broker/dealer, member FINRA/SIPC, and SEC registered investment adviser.   Investment Advisory Services may also be offered through Steward Partners Investment Advisory, LLC, an SEC registered investment adviser.   Steward Partners Investment Solutions, LLC, Steward Partners Investment Advisory, LLC, and Steward Partners Global Advisory, LLC are affiliates and separately operated.  <Team Name> is a team at Steward Partners.

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