Financial Planning
April 24, 2023

Is a Roth Conversion in a Down Market a Good Idea?

Stewart Willis

A down market, or bear market, can be cause for concern. That’s especially true if it affects your investment portfolio. However, depending on your financial situation, a down market can be the right time to perform a Roth conversion. Below, we look at why you might consider a Roth conversion in a down market and how to decide if it’s the right move for you.

What Is a Roth?

Computer image of man in suit looking at Roth IRA illustration on digital phone calculator in background

A Roth is a type of Individual Retirement Account (IRA). There are two main types of IRAs:

  • Traditional IRA: With a traditional IRA, you pay in pre-tax dollars. You won’t normally pay tax on distributions until you make a withdrawal after the IRA retirement age (59.5 years). You’re obliged to withdraw a certain amount each year after you reach 72.   
  • Roth IRA: With a Roth IRA, you pay tax on the money entering your account. You will not pay further taxes on these amounts when you later make a withdrawal. Unlike traditional IRAs, there are no required minimum withdrawals (distributions).

Both Roth IRAs and traditional IRAs help you plan for the future and save for your retirement. However, they each provide unique tax advantages, and there are different rules for making withdrawals. If you’re unsure which type of IRA is right for you, our financial advisors can help.

What Is a Roth Conversion?

The definition is simple: a Roth conversion means taking your traditional IRA and converting it into a Roth IRA. In other words, you pay taxes on money taken out of your traditional IRA, then move it into another type of account where the funds can grow tax-free.

  • Tax is payable on the amount converted in the year that you made the conversion
  • Tax is assessed at the usual income tax rates

Who Should Consider a Roth Conversion?

Roth conversions in down markets (or strong markets) won’t make sense for everyone. Irrespective of the market, here’s when you might consider a Roth conversion.

  • You anticipate that your tax bill will be higher when you reach retirement age, so it makes sense to pay taxes now. 
  • Right now, your retirement assets are primarily in tax-deferred accounts and you want to diversify your investment portfolio.
  • Since there are no required minimum distributions (RMDs), your wealth can grow to benefit your heirs.

Many individuals could benefit from a Roth conversion. Our experienced advisors can explain your options and help you determine if a conversion is best for your investment strategy. Or get started with a complimentary portfolio review.

Benefits of a Down Market Roth Conversion

Despite markets being down, here’s why it could be the right time for a Roth conversion.

  • If you’re a young worker, and you’re worried about potentially rising income tax rates (or you anticipate a higher tax band in retirement), now could be the best time for a conversion.
  • Sliding prices mean that your IRA value could be down. Use this to your advantage – if you perform a Roth conversion now, you’ll pay income tax on a smaller portfolio amount.

A Roth conversion during a down market means you’re essentially paying tax on fewer assets (since your IRA value has depreciated). If the market recovers, and the dollar strengthens, this could prove to be a wise investment decision.

Downsides to Roth Conversions When the Market Is Down

As with any investment decision, there are drawbacks to down market Roth conversions.

  • If the conversion increases your adjusted gross income (AGI), this could affect your tax liabilities and healthcare premiums. 
  • Depending on your AGI, you could lose certain tax breaks and benefits.
  • You may be unable to withdraw money from the Roth IRA for five years without paying a 10% penalty on withdrawn funds.

Weigh up the pros and cons before making any financial decisions.

Does a Roth Conversion in a Down Market Make Sense?

In short, Roth conversions in a down market can be a good idea. Do not let a down or bear market deter you from making the switch. Instead, consider your specific financial situation and investment goals. Just remember that a conversion can increase your AGI, and you may need to wait at least five years to make a withdrawal without paying a penalty.

If in doubt, contact Asset Preservation Wealth & Tax for advice tailored to your situation.

Invest in Your Wealth | Asset Preservation Wealth & Tax

Is it time for a Roth conversion? Contact Asset Preservation Wealth & Tax. Our experienced retirement planning advisors can discuss Roth conversions in more detail so you can make a fully informed decision.

Whether you’re considering opening a Roth IRA or want advice on down market Roth conversions, we are here for you. Schedule a complementary portfolio review with us.

A Roth conversion may not be suitable for your situation. The primary goal in converting retirement assets into a Roth IRA is to reduce the future tax liability on the distributions you take in retirement, or on the distributions of your beneficiaries. The information provided is to help you determine whether or not a Roth IRA conversion may be appropriate for your particular circumstances. Please review your retirement savings, tax, and legacy planning strategies with your legal/tax advisor to be sure a Roth IRA conversion fits into your planning strategies.

Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not refer in any way to securities or investment advisory products. Fixed insurance and annuity product guarantees are subject to the claims paying ability of the issuing company; not guaranteed by any bank or the FDIC.

Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to and search by our firm name or by our CRD # 175083.

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