Watch the video below to see Tony answer one of YOUR questions…
On this week’s “Tony In the Trenches”, we were asked…
“Tony – With my 401(k) now down over 20% due to recent stock market crash, is there anything I can do, tax-wise, to take advantage of this?”
Let’s take a second to appreciate this great Glass Half Full kind of question!
One thing we must understand is that the 401(k) balance we all monitor so closely is just a number on paper. Therefore, the rise and fall doesn’t necessarily mean anything unless you do something with it – at that exact moment. It is very important to understand how you might be able to utilize the rise and fall of the stock market to your advantage.
2020 – 401(k) Balance: $300,000
2021 – 401(k) Balance: $500,000
2022 – 401(k) Balance: $300,000
In this example, an individual could feel like they gained and then lost $200,000 due to the rise and fall of their 401(k) account balance from the years 2020-2022. However, they did not necessarily gain or lose anything because this money was all on paper in the first place.
One approach would be to take this time and utilize it to the Saver’s advantage.
Because that number is lower in value, it may be best to consider a Roth conversion. For example, concerting $50,000 and paying taxes around $5,000-$10,000 now. We will assume that one day, possibly 20 years down the road this account has grown similarly to how the market has performed over the past 20 years… you could be looking at $300,000 completely TAX FREE!
This isn’t a suitable option for everyone, but it is important to consult with your financial advisor about what is best for you and your future!