Thinking About a Roth Conversion This Year?

Posted on July 2nd, 2020

The low tax environment coupled with market volatility makes Roth Conversions even more appealing this year. The current tax rates are set to sunset after 2025; possibly sooner should there be a change in administration after this election season.

Roth IRAs are an important retirement planning tool because not only do they grow tax free, distributions in retirement are tax-free.

Converting your Traditional IRA to Roth during a drop in the market provides you with an opportunity to convert more of your retirement savings to Roth.  

For example, say you decide to convert $15k to Roth this year to fill up your tax bracket. You’ll pay taxes on the amount you convert at the lower tax rates.  If you own 200 shares of XYZ stock, and it was valued at $100 per share but has dropped to $85 per share, you can convert more of the shares you hold to Roth for the same dollar amount.

As a result, you would be able to convert a larger portion of your retirement account for the same cost. Your tax bill will be the same, but more of your holdings will now be in your Roth IRA.