Tax Opportunities When the Stock Market Pulls Back

In this clip from our podcast with Aaron Hector, he explains how a market pullback can actually be a tax win.

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You talked once about during market pullbacks, that can present some opportunities to someone who’s on top of things. Go ahead with that.

If you’re in a situation where you have TFSAs, a contribution room is a good example. The market has fallen by, say, we’re in a correction market’s down 20%, and you have to take your RIF withdrawal out. You know, every time this happens, there’s a whole bunch of people complaining about needing to take money outta their RIF in a depressed market. Well, really, if you look at the RIF, the RIF is a big basket of future taxable income, and if the size of it is smaller. You can extract that minimum payment out, you’re taking a larger percentage of that account out because it has shrunk, and then you’re moving it across into a TFSA.

And then, you know, in most cases the, the market does quite well after, um, corrections and then you’re taking care of the uptick in the market in an account that has better tax characteristics. It’s just a way of kind of thinking strategically in those moments, I think about, uh, where the tax bill’s gonna lie and, and where the, the recovery is gonna be better held.

You said that very well, that last line. People do this very poorly, I think for some reason, our wiring makes us struggle with this. There’s something about taking it out and your point about the RIF is, bang on people get more and more upset when the markets are down and they have to do, but your, your angle of moving into TFSA makes perfect sense, but we’re not wired to kind of grab this.

You don’t have to spend it. That’s exactly the point. You don’t have to spend it. No, I, I love that piece.