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Investing Specialists

Should You Tax-Loss Harvest in Your IRA?

Conversions and recharacterizations, rather than tax-loss selling, are the better strategy for most.

Note: This article is part of Morningstar's Nov. 2016 Year-End Tax-Planning Guide special report. A version of this article appeared Feb. 7, 2016.

You often hear about tax-loss selling at year-end, because you have to realize losses by Dec. 31 if you want to use them to lower your tax bill for that year. But that strategy is typically best employed by investors who have significant assets within taxable accounts. For investors with the bulk of their assets within tax-sheltered investments (and that's most of us) tax-loss selling will tend to be much less appropriate. Instead, the best way for IRA investors to improve their tax positions will be to consider converting a portion of their traditional IRAs to Roth. But even that strategy will be tend to be much less beneficial when the market is up, as it has been recently.

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