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Market Volatility and Roth IRA Conversions

Is now the time to convert?

With recent market volatility, now may be a good time to consider converting assets to a Roth IRA. Converting assets while your account value is down may allow you to pay less in taxes.

Why? Because your account earnings are taxable when distributed (or converted), the less gains you've earned mean less taxes due now. And if you have a long time horizon before needing those assets, you have the potential to accumulate more tax-free growth should the market rebound in the future.

 

Is a Roth conversion right for you?

Generally, a Roth IRA conversion may be appropriate if you want to minimize income taxes in retirement or potentially pass tax-free assets to your beneficiaries. If you think you might be in a higher income-tax bracket in retirement, paying taxes now can save you from paying taxes later at a potentially higher rate.

 

Conversion Details

  • Anyone, regardless of their earnings, can convert their Traditional IRA (or other qualified retirement plan, if eligible) to a Roth IRA.
  • Converting assets to a Roth IRA is a taxable event, with the taxes due for the tax year in which you made the conversion.
  • There is no limit to how much you can convert to a Roth IRA; however, the income limits for regular Roth IRA contributions remain in effect.
  • Regardless of your Modified Adjusted Gross Income (MAGI), you have the flexibility to convert a portion of your assets each year, thereby spreading the tax liability over time.

 

Due to the income tax consequences triggered by a Roth conversion, be sure to discuss with your financial advisor and tax professional whether a conversion makes sense for your particular situation.

To learn more about the key features of a Roth IRA, visit the Roth IRA section of this site or download a copy of our Roth IRA Conversions Brochure.

 

Retirement Planning

Financial planning can be complex. We provide information and strategies to help you navigate the world of investing.

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