Might be a good time for a Roth conversion (April 2025)

[JoeWras]

I know we don't like to talk timing too much here.

However. With the recent market drop, this *might* be a good time to do your Roth conversion.

For those new to the idea, it goes like this:
- Given: the market has ups and downs
- Given: the market will recover over time
- Given: gains in a Roth account are not taxed
- Therefore: convert to Roth or fund Roth during low times in the market

Anyone thinking about it?

 

[Midpack]

I guess, but I’ve been doing Roth aggressive conversions since 2019 and will continue. Kinda sad the “opportunity” timing conversions while NAVs are down, but it’s not a bad idea if you’re timing is right…good luck.

 

[SevenUp]

If it was a good idea (i.e., favorable due to current vs. future marginal tax rates) before the drop, it's now a better idea.

If it was a bad idea (i.e., unfavorable due to current vs. future marginal tax rates) before the drop, it's probably still a bad idea.

 

[Al18]

I think I'll wait a few weeks for the market prices to settle.

 

[lakeview]

Yes, I am considering an in-kind Roth conversion of some CEF holdings.

 

[Healthy Lifestyle]

Yes, I am watching closely and want to do Roth conversions when the dust settles.
However, I think this market downturn may have more to go, but who knows?

 

[wdwwildbill]

Yes, I need to start doing them and this may be a good time to start !!

 

[Koolau]

A few years too late for me but I did it a long time ago.

 

[misanman]

Yes, I started noodling out a Roth conversion plan yesterday. I was originally planning one for year end but thinking that this might be a better time.

 

[imjustawarrior]

My current plan is to do it near the end of the year. That way I only have to do one and I'll have a better understanding of how much to convert.

Maybe if things get bad enough, I'll take the time to convert before the end of the year.

 

[JoeWras]

I was thinking of approximately half very soon, and then the calculated remainder at end of year.

 

[newuser]

I'm waiting a bit. My plan was to convert about $40K this year but was looking more at end of year. This dip has me re-thinking. I think down 25% will be my tipping point and may do more if it drops even further.

 

[imjustawarrior]

I was trying to decide between selling my remaining stock options or doing roth conversions. My stock options are all under water now. I guess it will be a roth conversion. I'll wait until the end of the year. Hopefully, things will have settled down by then.

 

[TwoBitsCA]

If it was a good idea (i.e., favorable due to current vs. future marginal tax rates) before the drop, it's now a better idea.

If it was a bad idea (i.e., unfavorable due to current vs. future marginal tax rates) before the drop, it's probably still a bad idea.

If it is a bad idea before the drop, it's not any worse now though, right? Actually, if it was a bad idea before the drop, wouldn't it be slightly better now (but still bad overall) because you'd pay the same amount of taxes now but you'd wind up with a higher percentage of your portfolio in a Roth?

 

[SecondCor521]

I keep a list of things to do when the market is "down/low" and when it is "up/high". Not really market timing, because I keep a consistent AA. Just things that might help a tiny bit on the edges.

Roth converting when the market is down 15% in the year is something I typically would do. This year I won't, because I bought a new car, which caused tax implications.

If I were going to do a Roth conversion this year, history has taught me that I tend to pull the trigger too soon, and that frequently it is better to wait until there is blood in the streets, I personally am nervous, and it looks like the world is going to end. Obviously the last two market days have been rough, but the aggregate optimism is still not entirely extinguished, so while I would like a quick snap back, it really wouldn't surprise me to see further downside.

I do plan to rebalance my Dad's accounts back to his standard AA today/tomorrow.

 

[SevenUp]

If it was a good idea (i.e., favorable due to current vs. future marginal tax rates) before the drop, it's now a better idea.

If it was a bad idea (i.e., unfavorable due to current vs. future marginal tax rates) before the drop, it's probably still a bad idea.

If it is a bad idea before the drop, it's not any worse now though, right? Actually, if it was a bad idea before the drop, wouldn't it be slightly better now (but still bad overall) because you'd pay the same amount of taxes now but you'd wind up with a higher percentage of your portfolio in a Roth?

Whether a Roth conversion will be beneficial depends on the marginal tax rate to convert now, vs. the expected marginal tax rate to convert/withdraw in the future. The amount of tax paid is irrelevant: what matters is the amount left after tax.

You get the highest amount left after tax by converting/withdrawing at the lowest marginal tax rates.

Often the amount of Roth conversion isn't enough to change either the current or expected future marginal rate. If it is enough to change the expected future rate, then the change will be in the direction of lower rates, which usually would argue "don't convert now - wait to convert later".

But if the market drop is extreme enough to decrease the current marginal rate, e.g., a $10 million portfolio has dropped in value to $1,000 and all $1,000 can be converted at a very low tax rate, then it could be a good idea to convert now.

 

[NomDeER]

I've been converting small amounts as the market has been dropping. Kind of like dollar cost averaging. I'll leave a little room to decide on the final amount at the end of the year.

Sure, I won't be converting it all at the bottom, but my crystal ball is broken, and the tariffs are making it too expensive to buy a new one.

 

[Blanche]

I know we don't like to talk timing too much here.

However. With the recent market drop, this *might* be a good time to do your Roth conversion.

For those new to the idea, it goes like this:
- Given: the market has ups and downs
- Given: the market will recover over time
- Given: gains in a Roth account are not taxed
- Therefore: convert to Roth or fund Roth during low times in the market

Anyone thinking about it?

Yes, I am. I am little bummed because I just converted a large amount in Jan, the value of which would be 40% had I waited until now to convert. Oh, well. But I am keeping an eye on that a/c and will convert the last remaining small amount if things absolutely tank this week!

 

[Montecfo]

I guess market declines really don't matter as long as tax rates remain static and you're investing the funds post conversion in the same manner as pre.

But

Converting when prices have dropped does improve cash flow in the near term.

So to me, that's definitely a reason to want to consider doing Roth conversions in a market decline if that was already on your menu and that is not changed.

 

[Exchme]

Thinking you can guess the timing correctly is just plain old market timing. If stocks being down is a short term panic that will pass soon, Roth Conversions are a winner, if the current decline is the leading edge of a really bad downturn, they are a loser. Like most folks, some part of my lizard brain wants to believe I have special insight and can time the market better than everyone else, but sad experience shows I can't.

As a practical matter, I still work some on a part time basis and that income varies, so I can't tell in April what the year's income is going to look like, so I do conversions in December.

 

[Koolau]

Thinking you can guess the timing correctly is just plain old market timing. If stocks being down is a short term panic that will pass soon, Roth Conversions are a winner, if the current decline is the leading edge of a really bad downturn, they are a loser. Like most folks, some part of my lizard brain wants to believe I have special insight and can time the market better than everyone else, but sad experience shows I can't.

As a practical matter, I still work some on a part time basis and that income varies, so I can't tell in April what the year's income is going to look like, so I do conversions in December.

I don't think of Roth conversion when the markets are down as "timing" so much as prudence - assuming that you had planned on Roth converting anyway.

If I may ask, what does your income have to do with your potential Roth conversions?

 

[NomDeER]

I don't think of Roth conversion when the markets are down as "timing" so much as prudence - assuming that you had planned on Roth converting anyway.

If I may ask, what does your income have to do with your potential Roth conversions?

Many people, including me, take income into account when determining the amount to convert. The conversion counts as income, so it can affect things like your marginal tax bracket, ACA eligibility and subsidies, etc. This is why a lot of us wait until the end of the year to decide how much to convert.

In other circumstances, I think deciding when to convert can have an element like market timing. We all would prefer to convert when the stock market is at its lowest because we then earn more tax free. But, obviously, we can't know when the market will bottom out.

 

[Koolau]

Many people, including me, take income into account when determining the amount to convert. The conversion counts as income, so it can affect things like your marginal tax bracket, ACA eligibility and subsidies, etc. This is why a lot of us wait until the end of the year to decide how much to convert.

I think deciding when to convert can have an element like market timing. We all would prefer to convert when the stock market is at its lowest because we then earn more tax free. But, obviously, we can't know when the market will bottom out.

Thanks, now I get it. I thought Exchme had indicated only minimal income so I missed the obvious point. Aloha

 

[Fahshah]

I’m waiting until my tax return comes back from my CPA, it should be any day now. I’ll review where I was last year and add the SS that I will start collecting in June at FRA. Lots to look at: tax bracket, QD’s, LTCG’s, Medicare, …

 

[target2019]

I chose today for a Roth conversion. It's a smaller amount, and one-half of our 2025 tax bracket headroom.

Since I hold a mutual fund in the IRA, I won't know the share count until this evening.