On my last blog entry, I talked about things to do when the market declines. There are three good opportunities that spring to mind each time I think of a market pull-back, correction or all-out bear market. The three are:
- Turn on automatic dividend reinvestment.
- Buy more of a quality investment (stock, ETF, low-cost mutual fund) you already hold.
- If you have a traditional IRA, move some of the assets to a ROTH IRA.
On Thursday, as the market continued to correct downwards, I moved 500 shares of AT&T Inc (Ticker: T) from my IRA to my ROTH IRA. The reasons are as follows:
- The value of the shares was down, so the taxable amount of the transfer was less than it would have been at the beginning of the week.
- The income taxes I must pay on this “withdrawal” are, therefore, less than they would have been had I done this the week before.
- All future capital gains and dividends on these shares will no longer be taxable. This adds an additional $1,000 per year to my tax-free dividend income based on the current dividend. (And this will also likely grow every year.)
It could be argued that I should have done this transfer earlier (in July) when T was down even more. I prefer to wait until the fourth quarter of the tax year to make this type of decision.