By Eric Reich
One of the most common questions I get from people is should I convert my IRA to a Roth IRA? The answer is definitely not a one size fits all. It really depends on the individual, their tax situation, their liquidity, and intent for the money. I’ve written previously about if a conversion is right for you and why someone would or would not want to convert to a Roth IRA. Let’s assume that you have already determined that a Roth IRA conversion is right for you. The topic I want to tackle today is, when is the right time to do a conversion?
Let’s look at a few of the reasons I think now could be a great time to convert IRA assets to a Roth IRA.
The market is down. This is probably the most obvious reason why now might be a good time for conversion. Since converting an IRA to a Roth IRA is a taxable event, it makes sense to do it when the market is down because it allows you to move more shares over at a lower value, and therefore at a lower tax cost. Assuming all things being equal of course regarding your tax situation. If you convert an account that is down 20% for example, you would pay less in taxes by converting it now
Tax rates are low. We are currently in a tax environment that includes the lowest rates we’ve seen in decades and maybe we will see for the rest of our lives depending on our ages. If possible, pay taxes at the lowest rate possible and now certainly helps the argument that this is a good time to convert.
We’re currently $31,600,000,000,000 dollars in debt, yes that’s $36 trillion with a “T”! While this number makes me sick to my stomach, as a percentage of Gross Domestic Product (GDP) it is far from the worst around. That said, do we really think tax rates are going lower than where they are right now? I guess it’s possible, but if I were a betting man, I would absolutely bet that rates are going higher and possibly much higher in the not too distant future. Again, this would suggest that now is a great time to convert your IRA to a Roth IRA.
Lower account values, lower tax brackets, and the prospect of higher future taxes make now a great time to consider converting some or all of your IRA to a Roth IRA. Do not do this however, until you speak with your CPA to determine how a Roth IRA conversion will affect you and your unique tax situation.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a
Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations. A lifelong resident of Cape May County, Eric resides in Seaville, NJ with his wife Chrissy and their sons ,CJ and Cooper, and daughter Riley.
