Amid stock market volatility, many investors are seeking portfolio protection. But they could be missing a prime tax planning opportunity, experts say.  

The strategy, known as tax-loss harvesting, is selling losing assets from a brokerage account to offset other investing gains to lower taxes. Losses are typically used to offset gains, such as those from investment sales or capital gains distributions from mutual funds or exchange-traded funds.

Once losses exceed profits, you can subtract up to $3,000 from regular income. After that, you can carry excess losses into future tax years indefinitely.       

“It’s looking for a silver lining on a pouring, rainy, cloudy day,” said certified financial planner Sean Lovison, founder of Philadelphia-area Purpose Built Financial Services. 

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Investors should weigh tax-loss harvesting opportunities anytime there’s stock market volatility, experts say. 

“That should be throughout the year,” said Lovison, who is also a certified public accountant. 

Tax-loss harvesting could be attractive with the S&P 500 Index still down more than 15% from an all-time high in February as of midday Tuesday. The index briefly entered bear market territory — more than 20% off its record — during Monday’s session amid tariff uncertainty.    

Here are some key things to know about tax-loss harvesting, financial advisors say.

But you need to know about the “wash sale rule,” which blocks the tax break for buying a “substantially identical” asset within 30 days before or after the sale, according to the IRS.

While individual stocks may be easy, there’s less IRS guidance on how “substantially identical” applies to mutual funds and ETFs, experts say. 

For example, you could sell one large cap fund family for another from a different family when the holdings are slightly different, Lovison said.  

But if you’re repurchasing the same exact index holding identical funds, “that might not pass the [IRS] sniff test,” he said.  

It’s an uneasy time for the many families who rely on the stock market’s returns to send their children to college.

Stocks have been in the red amid President Donald Trump’s new tariff policy and worries of a global trade war. The S&P 500 dropped around 15% between when Trump took office on Jan. 20 and Apr. 7, according to Morningstar Direct.

The index shed almost 11% in the two days of trading ending Friday, and continued its decline Monday. It was little changed Tuesday afternoon.

State-sponsored 529 college savings plans, like other investment accounts, may see the market selloff reflected in their balances. These plans, which are named after Section 529 of the Internal Revenue Code, allow parents to invest money and then withdraw it tax-free to cover certain education expenses.

Fortunately, you have options if a college bill is due soon, financial experts say. Meanwhile, if your child is still young, it may actually be a good time to buy stocks at a discount.

“The stock market will eventually recover,” said higher education expert Mark Kantrowitz.

At least that’s what history has shown. If an investor put $10,000 into the S&P 500 index on Jan. 3, 2005, and left that money untouched until Dec. 31, 2024, they would have amassed $71,750, for a 10.4% annualized return over that time, according to JPMorgan Asset Management’s research.

Here’s what college savers should know during the market volatility.

Another benefit of the age-based investment strategy is that the funds automatically rebalance to sell high and buy low, added Glassman, who is also a member of the CNBC Financial Advisor Council.

“So not only are they getting less risky over time, but they have been taking profits as stocks have soared to bring risk back into check,” he said.

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Parents should check to see if their 529 plan account is invested in “a dynamic” portfolio, Kantrowitz said.

“The dynamic portfolios change the asset allocation either by age or enrollment date,” he said.

Typically, the age-based accounts start off at the time of the child’s birth with 80% to 90% in stocks, and gradually reduce that share to under 30% as college approaches, Kantrowitz said.

Families can potentially use their 529 college savings account to repay student debt for a beneficiary without incurring taxes or penalties, Kantrowitz explained. But the lifetime limit of the option is $10,000, he said.

The stock market has been throwing a temper tantrum, fueled by fear of President Donald Trump’s tariff policy and the specter of an escalating global trade war.

Americans may wonder why trade policy has made stock investors so skittish.

At a high level, investors are nervous that a prolonged trade war poses significant risks for corporate profits and the U.S. economy, according to investment analysts.

That’s not a foregone conclusion, however. The Trump administration could strike trade deals and blunt the overall impact, for example, experts said.

“But if that doesn’t happen, the market may still be a long way from the bottom,” Thomas Mathews, head of Asia-Pacific markets at Capital Economics, wrote in a note on Monday.

It was the worst two-day stretch for the U.S. stock benchmark since March 12, 2020 — in the early days of the Covid-19 pandemic — and the fourth worst since 1950, according to Callie Cox, chief market strategist at Ritholtz Wealth Management.

Stocks briefly entered “bear market” territory — meaning they’d fallen 20% from their recent peak — during trading on Monday before paring some of those losses.

The sell-off came after Trump announced a sweeping plan Wednesday to put a 10% baseline tariff on U.S. trading partners. He set significantly higher rates for nations including China and traditional allies like European Union members.

Their scope caught many investors off guard.

The announcement “was more significant than most expected, so we had a material sell-off” in the stock market, Chris Harvey, head of equity strategy at Wells Fargo Securities, wrote in an e-mail.

The fear is that tariffs will dent growth for publicly listed companies and the broader U.S. economy. Wall Street has raised its odds for a U.S. recession.

Tariffs are a tax paid by U.S. companies that import goods from abroad, and they therefore raise costs for U.S. businesses. Companies may eat some of that cost to avoid raising prices for consumers, eroding profits.

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But economists expect businesses will pass at least some of the extra cost to consumers. The average household will lose $3,800 of purchasing power per year due to tariff policies announced so far, according to the Yale Budget Lab.

Consumers may pull back on spending, and lower sales would likely dent company profits. Companies may opt to lay off workers, further pressuring consumer spending, which accounts for about 70% of the U.S. economy.

Retaliatory trade measures compound the problems, economists said.

China put a 34% tariff on U.S. products after Trump’s announcement of “reciprocal” tariffs last week, and vowed it would “fight to the end.” Canada put 25% tariffs on a range of U.S. goods, while the EU bloc is readying its own 25% retaliatory duties.

(The S&P 500 was up over 2% Tuesday morning on rising hopes for trade deals with China and South Korea.)

Retaliatory tariffs make U.S. goods sold abroad more expensive, hurting export-reliant businesses — perhaps leading to layoffs and lower consumer spending.

“We expect many — if not all — countries outside the U.S. to adopt retaliatory tariffs of their own,” the Wells Fargo Investment Institute wrote in a note Friday.

Wells Fargo expects “significantly lower” growth for the U.S. economy in 2025 due to “unexpectedly aggressive tariff increases.” It lowered its target for gross domestic product to 1% from 2.5% this year.

For now, the economy isn’t yet showing signs of dramatic weakening, said Joe Seydl, senior markets economist at J.P. Morgan Private Bank. If tariff policy proves to be long lasting rather than temporary, the shock would likely cause a “mild” U.S. recession, he said.

“While tariffs are highly likely to generate at least a temporary rise in inflation, it is also possible that the effects could be more persistent,” Federal Reserve Chair Jerome Powell said Friday.

The Fed may not cut interest rates as quickly as anticipated as a result.

The dynamic would likely keep borrowing costs higher for businesses, dampening growth prospects for those unable to invest in and expand their operations.

The first Trump administration put tariffs on about $380 billion of imports, in 2018 and 2019, according to the Tax Foundation. Now, there are tariffs on more than $2.5 trillion of U.S. imports — or, about seven times more.

Another difference is the White House’s public stance toward tariffs and communication about it, analysts said.

During Trump’s first term, there was level of stock market volatility the administration didn’t find tolerable, Seydl said. Now, there appears to be less concern about stock gyrations — which is perhaps the most important factor in the stock sell-off, he said.

“The capital markets (especially equities) are sending a signal to the Administration that all is not well and the probability of recession, job losses, and a negative wealth effect are all increasing,” wrote Harvey of Wells Fargo.

“The Administration has been somewhat dismissive of these signals, creating a negative feedback loop,” Harvey wrote.

Uncertainty around the framework, goals, potential duration and the White House’s economic tolerance regarding tariffs makes it difficult for investors to assess market risk, he added.