Roth Conversions

[augam]

Been a thread or 2 regarding conversions as of late. I have given it some thought since those pesky RMD's are down the road say in 10 -12 years albeit.

Reflecting on the 2009 market decline that most if not all experienced, I am wondering if waiting until the next sustained bear market would be the time to convert.

Not trying to play Monday morning QB.... but if there was one thing I wish I had done in 2009 - in addition to staying the course would have been taking the hit on the portfolio that had fallen nearly 40%.

Thoughts?

 

[RunningBum]

Yeah, I sure wish I had done conversions in 2009. There was even that deal where you could defer the taxes to a 2010 conversion over the next two years that I didn't take advantage of.

The problem is, you don't know when that drop is going to come. If the market goes up another 5% a year for 5 years, then drops 10%, are you going to declare victory, even though you're 15% behind?

I've been just spreading my conversions out over the last ~10 years, using tax ceilings and ACA subsidy limits as my guide. If it made sense to do it all at once I'd do it, and hope I could time a drop, but the tax effect means taking some each year anyway.

 

[SecondCor521]

I think there is more to be gained by following RunningBum's approach than by waiting. If you wait for a crash, you'll end up with more to convert in that one year, so you might be in a high bracket on some of that conversion anyway.

What I mean is, if you've got $1M to convert over the next 10 years, following RB's approach you might convert $100K a year. With your approach, if the big down year is in year 5 and you don't convert in the first four years while you're waiting, then you have to convert $500K in that fifth year, which probably puts you in a much higher bracket that year.

Plus, drops like 2008/2009 aren't all that common. I wouldn't want to count on one coming along in the next 10-12 years as part of my plan. If the drop comes in year 9, are you going to convert $900K? What if the drop never comes?