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I'm pretty sure every financial advisor I know would prefer bullmarkets to bear markets, but smart advisors view bear markets withthe same eye for opportunity as they view bullmarkets. Here are four techniques that are especiallyapplicable to this bear market, including one created by theCoronavirus Aid, Relief and Economic Security (CARES) Act.

1. Tax loss harvesting

One highly valuable opportunity in down markets is tax lossharvesting. Tax loss harvesting provides a couple of keyadvantages.

First, the loss from the sales can be used to offset futuregains, and a small portion of the loss ($1,500 for single, marriedfiling separately or $3,000 for married filing jointly) of the losscan offset ordinary income.

For example, if I were single and I harvest $100,000 of lossesthis year and only end up recognizing $10,000 of capital gains, Iwill pay no tax on the recognized capital gains, and I'll get a$1,500 deduction against ordinary income. I can carry over theremaining $88,500 against future years' capital gains.

Tax-loss harvesting can also help get a "stuck position"unstuck. If an advisor has clients whohave accumulated significant gains in a single position, such thatit is now outsize compared to the rest of the portfolio, but theywere hesitant to trim back due to the tax implications, offsettingthe gains with losses harvested in other parts of the portfolio canhelp bring the overall portfolio into line with the client's goals,without incurring a big tax bill.

Since capital gains can create a variety of painful interactionswith Social Security benefits, ordinary income tax and netinvestment income tax, harvesting losses can have an outsizepositive impact on the client's overall financial plan.

There are a few cautions to be mindful of when executing a taxloss harvesting strategy. The last thing an advisor would want todo is sell desirable holdings into a market trough andleave the proceeds in cash, so evaluating the tax impact againstthe impact on the portfolio's overall strategy is important.

The advisor should first identify alternate portfolio holdingsto purchase, after the sale of the original holdings, that meet therisk/return profile established with the client. In the process ofselecting alternate holdings, wash sale rules must beconsidered.

If the same or "substantially identical" positions arerepurchased by the client (not necessarily in the same account),within the following 30-day period, then the lossis disregarded for tax purposes. In order to achieve the desiredtax outcome, advisors need to be mindful of their replacementholdings, ensuring they are not substantially identical to theholdings sold.

Tax loss harvesting is generally a strategy used only innonqualified accounts, but you'll need to be mindful also of theinteraction with other client accounts. You could accidentallyviolate wash sale rules by harvesting a tax loss in thenonqualified account, then completing a rebalance in an IRA or RothIRA that causes the client to repurchase the same security in theIRA or Roth that they just sold in the nonqualified account.

In order to mitigate this concern, consider completing anyrebalances for clients who are also doing tax loss harvesting usingthe alternate portfolios, managing the new purchases as a separate"sleeve," or postponing the rebalance until the wash sale periodexpires. Each technique has positives and negatives.

2. Roth conversions

A second technique to be evaluated during times of market stressis Roth conversions. Hopefully this is a regularly used techniquein your retirement planning practice. One of the most commonproblems for retirement plans is an overabundance of IRAmoney that causes future required minimumdistributions (RMDs) to be greater than the client's needfor spending, subjecting each dollar of excess RMD to theclient's highest marginal tax rate.

Roth conversions are a technique that allows advisors to help"smooth" the client's tax bracket over the client's lifetime,reducing the overall lifetime tax liability. That said, Rothconversions take on a special importance in down markets.

If a client's IRA is likely to be overfunded, even in thepresence of a correction or bear market, then pushingfunds from the IRA into the Roth and paying taxes now, particularlyat the current historically low tax rates, allows any recovery tooccur tax-free and to be passed to beneficiaries at the client'sdeath tax-free as well.

Second, in normal times, most advisors wait until the end of theyear to determine Roth conversion amounts in order to have a goodgrasp on any interactions with capital gains (such as netinvestment income tax, Medicare premium surcharges, phaseouts ofdeductions, or capital gains bracket bumps from 0-15% or from15-20%) that are realized through the year.

You may be able to accelerate those conversions to earlier inthe year, knowing they will have harvested losses likely to offsetat least the amount of gains the client may accumulate through thebalance of the year.

3. Skip the RMD (CARES Act)

The recently passed Coronavirus Aid, Relief and EconomicSecurity (CARES) Act allows IRA owners who would otherwise besubject to required minimum distributions to forego making thosedistributions in 2020.

The option to skip the RMD is not just applicable to"regular" RMDs, but also to initial RMDs for people who turned 70 ½in 2019 but decided to forego their initial RMD until tax year2020, and also to inherited IRAs. Thereare specific opportunities to consider with each.

The initial RMD would need to have been taken by April1, while the regular RMD for 2020 would haveneeded to be taken by Dec. 31. If the initial RMD was taken withinthe last 60 days, it could be rolled over into an IRA as anindirect rollover, accomplishing the same result as skippingit.

People who have taken their initial RMD, but are out of the60-day window, or had to take separate RMDs from multiple accountswon't have the option to do the 60-day rollover due eitherto the timeline or to the "one rollover per year" rule, at leastnot for the totality of RMD amounts.

For those people, pay attention to the developing guidance andthe client's personal circumstances as they relate tothe 3-year repayment option that was also part ofthe CARES act.

If the client was impacted by COVID-19 (specific rules applyhere), the client can recontribute the amount withdrawn to the IRAand it will be treated as a loan, wiping out the tax consequencesof the withdrawal.

The recontribution option is available for regular RMDs inaddition to the initial RMD.

For clients who don't need either their regular RMD or the RMDfrom an inherited IRA, consider doing a Roth conversion. For thetraditional IRA, you could convert the entire RMD amount, or likelybetter, only the amount that keeps the client in a key taxbracket.

Although you can't directly convert the inherited IRA RMD to aRoth, by not taking it, the client will have additional room intheir current tax bracket, which may make a conversion from theirown IRA more desirable.

4. Poor on paper

The prior techniques generally revolve around keeping theclient's tax bill relatively steady, but there is anotheralternative that sometimes makes sense — often referred to as "pooron paper."

For clients who have nonqualified accounts and can live off thecombination of Social Security and principal withdrawals,it may be possible to have an unusually lowincome year in 2020, which may qualify them for a varietyof other benefits.

For some, this might mean relief from local property taxes onthe primary residence. For others, it could mean qualifying for ahealth care subsidy under the Affordable Care Act.

Evaluating whether a year of "poor on paper" is betterthan smoothing out a client's lifetime bracket will be acase-by-case situation.

Regardless of the techniques you employ in your practice, marketdeclines should be about much more than simply reassuring clientsand telling them to sit tight and wait for the market to recover.Instead, they should be viewed as opportunities to stick to yourinvestment strategy, while looking for financial planningopportunities that only occur once every several years.

Joe Elsasser developed his Social Security Timing softwarein 2010 because, as a practicing financial advisor, he couldn'tfind a Social Security tool that would help his clients make thebest decision about when to elect their benefits. Joe later foundedCovisum, a financial tech company focused on creating a sharedvision throughout the financial planning process.

In 2016, Covisum introduced Tax Clarity, which helpsfinancial advisors show their clients the hidden effective marginalincome tax rates that can significantly affect cash flow inretirement. In early 2017, Covisum acquired SmartRisk, softwarethat allows advisors to model "what-if" scenarios with accountpositions and align a client's risk tolerance with their portfoliorisk. In January 2019, Covisum launched Income InSight, an incomeplanning tool.

Covisum powers someof the nation's largest financial planning institutions and servesmore than 20,000 financial advisors.