What to Do in a Down Market: Tax Moves That Work in Bear Years
When the markets tumble, the headlines scream fear. Investors log into their accounts and see red. The natural instinct is to panic—move to cash, stop investing, or sit on the sidelines. But history shows that those who act strategically during downturns often come out much stronger.
At Crown Advisors, we believe bear markets aren’t just setbacks. They’re opportunities—especially when it comes to taxes. With the right moves, you can reduce your lifetime tax bill, reposition your portfolio for recovery, and even enhance your legacy planning.
Here are the key strategies John Foard and Bill Kearney discussed in the Retire Stronger podcast episode:
1. Roth Conversions at a Discount
One of the most powerful moves in a bear market is a Roth conversion. When account values are down, you’re essentially moving shares into a Roth IRA “on sale.”
Example: If your IRA drops from $200,000 to $150,000, converting $50,000 today means paying tax on the depressed value. When the market recovers, all that growth happens tax-free.
Why it matters: Roth accounts are not subject to Required Minimum Distributions (RMDs), they don’t increase your future taxable income, and they provide tax-free income in retirement.
Bear years give you the chance to lock in more shares for the same tax bill, amplifying the long-term benefit.
2. Tax-Loss Harvesting
No one enjoys seeing investments down, but there’s a silver lining: you can harvest losses to offset future gains.
How it works: You sell investments that are down, realize the capital loss, and reinvest in a similar—but not identical—security. This avoids the wash-sale rule while keeping you invested.
The benefit: Those realized losses can offset capital gains in future years or reduce ordinary income by up to $3,000 annually.
Think of it as building a “tax savings account” that can be tapped later when you sell appreciated assets.
3. Rebalancing with Tax Awareness
Down markets often throw portfolios out of balance. A 60/40 allocation may suddenly look like 50/50. Bear years are a natural time to rebalance—and that often means buying more of what’s down.
Pairing rebalancing with tax-loss harvesting allows you to realign your portfolio and reduce taxes at the same time. And if you’re rebalancing within tax-advantaged accounts, you can strategically shift growth-oriented assets into Roth IRAs for maximum future tax-free growth.
4. Charitable Giving Strategies
If you’re charitably inclined, a down market can actually improve your giving strategies:
Donor-Advised Funds (DAFs): Contribute shares now (even if values are down) and let them grow tax-free for future gifts.
Appreciated Assets: Gifting securities avoids capital gains tax and provides a deduction for the full fair market value.
Qualified Charitable Distributions (QCDs): Once you’re 70½, you can direct IRA withdrawals to charity, reducing taxable income while fulfilling future RMD obligations.
Bear markets are often the right time to set these up.
5. Estate Planning in Bear Years
Market downturns also create estate planning opportunities. By gifting assets at lower valuations, you can transfer more shares under annual gift tax exclusions. When those assets recover, all future growth takes place outside your estate.
Advanced strategies like Grantor Retained Annuity Trusts (GRATs) or family partnerships also work more effectively when asset values are temporarily depressed.
Turning Fear Into Strategy
It’s natural to feel uneasy in a bear market. But remember: downturns don’t last forever, and the decisions you make during them can have benefits for decades.
Instead of viewing lower account balances as pure loss, think of them as a window for opportunity—whether that’s lowering your tax bill, improving your estate plan, or strengthening your retirement income strategy.
At Crown Advisors, we help retirees and pre-retirees across the Charlotte area navigate these decisions with confidence. If you want to explore which of these moves make sense for your financial situation, schedule a confidential strategy call with our team.
Because sometimes the smartest moves are made when markets feel the most uncertain.
Episode 26 – LISTEN TO THE PODCAST: