Episode summary
Should You Do Roth Conversions in a Down Market?
Your Money Your Wealth
· · 29 min · Hosts: Joe Anderson, Big Al Clopine · Guests: Alan, Ozzie, Harriet, Alan on Daufuskie Island
Summary
The hosts spend most of the episode debating whether Roth conversions are still worthwhile when markets are down. A caller in Lafayette, Louisiana argues with a spreadsheet that a conversion from a $7 million IRA can have a higher present value of taxes than simply taking future RMDs, especially once the extra state, federal, IRMAA, and capital gains taxes needed to pay the conversion tax are included. The hosts say the math can look convincing, but it depends heavily on assumptions about tax rates, growth, longevity, and what happens if one spouse dies first.
Their main counterargument is that down markets can make conversions more attractive because you can move more of the account into a Roth at a lower value and then capture the recovery taxfree. They also stress the non-math benefits: tax diversification, more control over retirement cash flow, protection against higher future tax brackets, and better outcomes for heirs. If a conversion is done, they prefer paying the tax from outside the IRA so the full amount lands in the Roth.
They also answer a question about whether to withhold taxes from an IRA withdrawal or pay them separately, explaining that the tax-only-from-brokerage approach matters most for Roth conversions because it preserves the amount converted. The episode closes by reinforcing that retirement tax planning is dynamic, not a one-time spreadsheet exercise.
Key takeaways
- The hosts argue that a down market can be a good time for Roth conversions because you may convert more dollars at a lower account value and let the recovery happen taxfree.
- The caller’s spreadsheet assumed a 9% growth rate and found conversion taxes of $36,700 on a $100,000 conversion, but the hosts said changing assumptions can make either side look right.
- Joe and Big Al say Roth conversions still have value even at the same tax bracket because they improve tax diversification and give retirees more control over future withdrawals.
- They warn that a surviving spouse can face a higher tax bracket, which makes future-tax assumptions in today’s spreadsheet less reliable.
- For Roth conversions, they prefer paying the tax from a brokerage account rather than withholding it from the IRA so the Roth receives the full converted amount.
Notable quotes
“The benefit of the conversion starts in 2031 with RMDs that are lower by about $2,000 per year initially ramping up to about $4,000 per year when I'm 90”
“If you think tax rates are going to go up, it doesn't matter. You already paid the tax”
“the spreadsheets give you maybe a sense of direction, but you you don't know for sure what's going to happen”
“I'd rather convert when it's 150 because I'm going to pay less tax”
“You maximize the Roth conversion. Right. Exactly. You don't want to withhold the money to do the conversion because you're going to have less money in the Roth”
How the episode opens
Joe and Big Al are spitballing on whether Roth conversions actually pay off. Today on Your Money, Your Wealth podcast number 602. Aussie and Harriet in Lafayette, Louisiana are 67, and Aussiey's spreadsheet says that converting from their $7 million IRA costs more than just taking the RMDs.
He challenges the fellas to change his mind. They also address Bondbee's many YouTube comments, telling them that their favorite guidance to convert when the market drops is flat wrong. Finally, Allan on DeFusky Island, South Carolina, asks for clarification on paying the tax to pay the tax when you pull money from an IRA and whether it matters if the tax comes out of the account or out of your brokerage.
And yes, all three of us pronounce defusky wrong in the spitball, which is why I'm pronouncing it correctly now. Quick favor before we start. If you like what you see in here, tell a friend and leave your honest rating and review in Apple Podcasts to help others find us.
I'm executive producer Andy Last and here are the hosts of Your Money, Your Wealth. Joe Anderson, CFP, and Big Al Copine CPA.
Are conversions actually net positive when you account for time value and investment returns? — Okay. — Well, that's a good bluff, Andy. — Yeah, real good. — Thank you very much. — Real good. — All right. Dear YMYW, Azie and Harriet here. We live in Lafayette, Louisiana.
Okay. — You ever been to Lafayette? — I have not. I've been to New Orleans. New Orleans. — That's it. — Nolo. — Nolo. — Uh, Lafayette. No, I've never been to Lafayette. That's where um the University of Isn't that where's LSU? Isn't that Lafayette?
Baton Rouge. — Oh, yeah. — There you go.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- roth conversions
- down market timing
- ira rmds
- retirement taxes
- paying tax on roth conversions
Companies and tickers mentioned
- Pure Financial Advisors, LLC
Watch the episode
Watch “Should You Do Roth Conversions in a Down Market?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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