Market volatility can make investors uneasy. Watching portfolio values fall is never comfortable. However, downturns can sometimes create strategic opportunities, especially for investors considering a Roth IRA conversion.
For many investors working with a financial advisor or wealth management firm, periods when the market is down can be one of the most advantageous times to convert traditional retirement accounts into a Roth IRA.
Below, we break down how Roth conversions work, when they make sense, and when they may not, so you can determine whether it may fit into your long-term financial plan.
Key Takeaways
- A Roth IRA conversion moves funds from a traditional IRA or 401(k) into a Roth IRA and requires paying taxes upfront on the converted amount.
- Converting during a market downturn may reduce the tax bill, since taxes are paid on the current (potentially lower) account value.
- Future growth in a Roth IRA can be tax-free, which may significantly benefit long-term investors.
- Roth IRAs do not require required minimum distributions (RMDs) for the original owner, allowing assets to continue growing longer.
- Roth conversions have no income limits, making them available even to high-income investors who cannot contribute directly to a Roth IRA.
- Conversions may not be ideal if you are close to retirement, expect to be in a lower tax bracket later, or lack funds to pay the taxes upfront.
- A Curi Capital financial advisor can help determine whether a Roth conversion fits into your broader tax and wealth management strategy.
What Is a Roth IRA Conversion?
A Roth IRA conversion occurs when you move money from a Traditional IRA or 401(k) into a Roth IRA.
The key difference:
| Traditional Retirement Accounts | Roth IRA |
| Contributions may be tax-deductible | Contributions are after-tax |
| Withdrawals taxed in retirement | Qualified withdrawals are tax-free |
| Required minimum distributions (RMDs) | No RMDs for the original owner |
When you convert funds into a Roth IRA, you pay income taxes on the amount converted today. In return, future growth and withdrawals can be tax-free if IRS rules are followed.
For example:
- Traditional IRA value today that is converted to a Roth IRA: $100,000
- Conversion taxes are paid on that amount this year
- If the Roth IRA account grows to $300,000 or $500,000 in retirement, those withdrawals would be tax-free
This potential for tax-free compounding is why many investors incorporate Roth conversions into a broader financial planning strategy.
Why Market Downturns Can Be a Strategic Time to Convert
When markets decline, the value of retirement accounts temporarily drops. Converting during these periods may reduce the taxes owed on the conversion.
Example:
- Portfolio value before downturn: $150,000
- Portfolio value during downturn: $100,000
- Converting now means paying taxes on $100,000 instead of $150,000
If markets later recover within the Roth IRA, that growth occurs tax-free.
For investors with a long-time horizon, this can significantly increase after-tax retirement wealth.
Roth IRA Income Limits—and How Conversions Bypass Them
Many investors believe they cannot benefit from Roth accounts due to income limits.
Direct Roth IRA contributions phase out at certain income levels for high earners. However, Roth conversions do not have income limits.
This makes them particularly attractive for higher-income investors who are otherwise unable to contribute directly to Roth accounts.
For many households, this strategy is an important component of advanced tax planning and wealth management.
Additional Benefits of Roth IRAs
No Required Minimum Distributions (RMDs)
Traditional IRAs require withdrawals during retirement. Roth IRAs do not require RMDs for the original account owner, allowing assets to continue growing for longer periods.
Tax-Efficient Estate Planning
Roth IRAs can also benefit heirs:
- Beneficiaries receive tax-free withdrawals
- The account can continue to grow before distributions are required
For investors thinking about multi-generational wealth transfer, Roth accounts can play a valuable role.
When a Roth Conversion Might Not Make Sense
Although Roth conversions offer advantages, they are not always the right move.
You Are Close to Retirement
If you plan to withdraw funds soon, there may not be enough time for tax-free growth to offset the upfront tax cost.
Example: Suppose Maria is 63 and plans to retire at 65. She converts $100,000 from a Traditional IRA to a Roth IRA and pays roughly $24,000 in taxes. If she plans to start withdrawals within a couple of years, the account may not have enough time to grow tax-free to justify the large upfront tax payment.
You Expect a Lower Tax Rate in Retirement
If you expect your income and tax bracket to drop significantly in retirement, paying taxes at a higher rate today may not be beneficial.
Example: David currently earns $180,000 and is in the 24% tax bracket. After retiring, he expects his income to drop to about $60,000, putting him in a lower bracket. Converting part of his Traditional IRA now would require paying taxes at his current higher rate, which could cost more than simply withdrawing the money later at a lower rate.
You May Need the Funds Soon
Converted funds typically must remain in the Roth account for five years to avoid potential penalties.
Example: Lisa converts $40,000 to a Roth IRA but plans to use the money in three years to help buy a vacation home. Because Roth conversions have their own five-year holding period, withdrawing the converted amount early could trigger taxes or penalties depending on her age and circumstances.
You Cannot Easily Pay the Conversion Taxes
Ideally, taxes should be paid using non-retirement assets. Using retirement funds to pay the tax bill reduces the benefits of the conversion.
Example: John converts $80,000 from his Traditional IRA but does not have savings available to cover the tax bill. If he withdraws money from the account to pay the taxes, he reduces the amount that can continue growing tax-free in the Roth IRA and may also face penalties if he is under age 59.5.
Advanced Strategy: The Mega Backdoor Roth
Some employer retirement plans allow a strategy commonly called a Mega Backdoor Roth.
This allows certain investors to make large after-tax contributions that can be converted into Roth accounts, sometimes significantly exceeding standard contribution limits.
When available, this strategy can dramatically increase the amount of tax-free retirement savings an investor accumulates.
However, employer plan rules vary widely, so it’s important to consult with a financial advisor. At Curi Capital, our team can help review your specific plan details and guide you toward the most tax-efficient strategy.
Should You Convert Your IRA to a Roth?
The right decision depends on several personal factors, including:
- Your current tax bracket
- Your expected retirement tax bracket
- Available cash to pay the conversion taxes
- Time horizon before retirement
- Estate planning goals
- Your overall investment allocation
Because these factors interact with each other, Roth conversions are typically evaluated within a comprehensive financial planning process.
Working With a Financial Advisor on Roth Conversion Planning
Strategic Roth conversions can be powerful tools, but timing and tax planning are critical.
A financial advisor can help you analyze potential tax outcomes and determine optimal conversion amounts. If a Roth conversion is the right strategy for you, your planer can integrate Roth strategies into your investment plan, and then plan for knock on effects, such as coordinating tax planning with your CPA and aligning your retirement planning with your estate and legacy goals.
Market volatility may create opportunities, but it’s important to remember that every investor’s situation is unique and deserves a personalized approach.
Final Thoughts
While market downturns can be unsettling, they sometimes create opportunities for long-term investors. Converting retirement assets during a market decline may allow you to pay taxes on a lower account value today while positioning those assets for tax-free growth in the future.
Before making a decision, consult with a financial advisor to determine whether a Roth conversion aligns with your overall financial strategy.
Frequently Asked Questions About Roth IRA Conversions
What is the main benefit of a Roth IRA conversion?
The primary benefit is tax-free growth and withdrawals in retirement. By paying taxes upfront, investors can potentially avoid taxes on decades of investment gains.
Is there a limit to how much I can convert to a Roth IRA?
No. There is no annual limit on Roth conversions, although the converted amount will be taxed as income in the year of the conversion.
Do Roth IRA conversions have income limits?
No. While Roth IRA contributions have income restrictions, Roth conversions are available regardless of income level.
How long must converted funds stay in a Roth IRA?
Converted funds generally must remain in the Roth IRA for at least five years to avoid penalties on withdrawals.
Should I convert my entire IRA at once?
Not necessarily. Many investors use partial or multi-year conversions to manage their tax brackets and reduce the overall tax impact.
Can market downturns make Roth conversions more attractive?
Yes. Converting during a market decline can reduce the taxable value of the assets being converted, potentially lowering the tax bill while preserving future tax-free growth.
Disclaimers
This article was originally written in October 2022 and most recently revised for accuracy as of April 2026.
Past performance is not indicative of future results, and there is a risk of loss of all or part of your investment. The opinions and analyses expressed in this newsletter are based on Curi Capital, LLC’s (“Curi Capital”) research and professional experience are expressed as of the date of our mailing of this newsletter. Certain information expressed represents an assessment at a specific point in time and is not intended to be a forecast or guarantee of future results, nor is it intended to speak to any future time periods. Curi makes no warranty or representation, express or implied, nor does Curi accept any liability, with respect to the information and data set forth herein, and Curi specifically disclaims any duty to update any of the information and data contained in this newsletter. The information and data in this newsletter does not constitute legal, tax, accounting, investment or other professional advice. Returns are presented net of fees. An investment cannot be made directly in an index. The index data assumes reinvestment of all income and does not bear fees, taxes, or transaction costs. The investment strategy and types of securities held by the comparison index may be substantially different from the investment strategy and types of securities held by your account.
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