When the market pulls back, most people get understandably uncomfortable. Account values drop, the headlines get louder, and the knee-jerk reaction is often to sit tight or go into full defense mode. But if a Roth Conversion is already on your radar, a down market may be the opportunity you’ve been waiting for.

Let’s break it down.

 

What’s a Roth Conversion?

A Roth Conversion involves moving money from a tax-deferred account (like a Traditional IRA) into a Roth IRA. The catch: you’ll owe income tax on the amount you convert in the year you make the move. The payoff? That money grows tax-free from that point forward, and qualified withdrawals in retirement come out tax-free.

If done strategically, this can significantly reduce your lifetime tax bill — especially if you convert when your account balance is temporarily lower.

 

A Quick Example

Theresa, age 55, has $100,000 in a Traditional IRA. She’s been thinking about a Roth Conversion for a while, with the goal of creating more tax-free income down the line. Then the market dips — her IRA drops to $80,000. Not exactly thrilling, but rather than panic, Theresa sees an opening.

 

Here’s how it plays out:

1. Lower Account Value = Lower Tax Bill.
   Conversions are taxed on the dollar amount moved. Converting $80,000 instead of $100,000 means less taxable income. Simple math.
2. Theresa Converts $80,000.
   At her 24% tax rate, she owes $19,200 in tax. If she had waited and converted the original $100,000, she would’ve owed $24,000. That’s $4,800 in savings — no fancy tax shelter required.
3. She Pays Taxes from Savings. This keeps her Roth intact and growing. No need to cannibalize the account just to pay Uncle Sam.

And before anyone asks — no, this is not a “market timing” strategy. Theresa didn’t rush into anything. She already had the Roth Conversion on her radar. The market downturn just made it more efficient.

 

So, Should You Convert Now?

Not necessarily — but it’s worth exploring if a Roth Conversion already fits into your long-term plan. A downturn doesn’t change the fundamentals; it just improves the math.

 

Before making a move:

• Review your current tax bracket.
• Make sure you have cash outside the IRA to cover the tax bill.
• Understand how a conversion could impact things like Medicare premiums or other income thresholds.
• Coordinate with your financial planner or tax advisor (ahem).

 

Final Thought

A market dip feels bad in the moment, but it can open the door for long-term planning opportunities — if you’re ready. A well-timed Roth Conversion might just be one of them.

 

If you’re wondering whether this strategy makes sense for your situation, let’s talk. I’m happy to help you run the numbers and see if now’s the right time to take action — or wait.