Amidst the current economic state, characterized by the highest inflation rate in a decade and concerns of a prolonged recession, corporate CEOs are engaging in discussions regarding the potential occurrence of a recession. Typically defined as an economic downturn lasting at least six months, a recession is a matter of significant consideration for business leaders.

What is a recession?

A recession is a period of economic decline that persists for a certain amount of time, that can affect the overall performance of the economy. This phenomenon is identified by experts when a country’s gross domestic product (GDP) experiences a decline, accompanied by rising unemployment rates, declining retail sales, and a decrease in manufacturing and income over an extended period. Recessions are considered an inevitable aspect of the business cycle, which encompasses the regular pattern of contraction and expansion that occurs within a nation’s economy.

How to Save

Move Retirement Funds to Roth Accounts

Low-income years present an ideal time to undertake a Roth conversion, as it allows for tax-free growth of funds in a Roth account. However, transferring funds from a traditional IRA or 401(k) account to a Roth account requires payment of regular income tax on the converted amount. A low-income year presents an opportunity to pay these taxes in a lower tax bracket.

Maintain Your Investment Strategy

It is advisable to exercise caution when considering a reorganization of your account types for financial management purposes. During a recession, it is generally recommended to avoid making significant changes to your investment strategy. It is important to note that withdrawing funds from the market during a downturn can result in the entrenchment of losses. Even if you are able to withdraw funds before a market plunge, you may miss out on potential rebounds. It is worth noting that some of the most profitable trading days occur immediately following the worst days in the market. 

Tax-Loss Harvesting

Tax loss harvesting refers to the practice of selling certain investments at a loss in order to offset gains that have been realized through the sale of other stocks at a profit. This strategy results in the payment of taxes on the net profit, which is calculated by subtracting the amount of losses from the amount of gains. As a result, the tax bill is reduced. 

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