Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

Roth Conversion during Market Pullbacks

edited March 9 in Fund Discussions
Some of our mutual funds are down significantly YTD. This might not be a bad time to consider executing a Roth conversion if you were planning on doing one.

According to a March 2020 report from Fidelity Investments, in the year after the “trough” of a bear market, the S&P 500 has gained an average of 47%. That is in comparison to the little over 8% per year on average that the S&P 500 has returned over the last 20 years*. To go back to my example of a $50k conversion, let’s assume you did that when the market was at the low on March 23rd of this year. The S&P 500 is up 44.54%* from March 23rd through yesterday, July 28th, so that $50k grew to just over $72k in about 4 months, $22k of tax-free growth.
A Roth conversion may not always be in a
taxpayer’s best long-term economic interests if:
• The current tax cost of the conversion is prohibitively high. A Roth conversion, in
its simplest sense, is a trade-off between paying taxes now vs. paying taxes later.
For the strategy to be impactful, the current tax cost of the conversion should not
be so expensive that it outweighs the benefit of any expected future tax-free
investment growth.
• The taxpayer is making regular and material withdrawals from their pre-tax IRA.
• The taxpayer does not have the cash to pay the tax due on conversion.

We recommend converting shares of investment positions rather than selling investments in
the IRA and then converting cash proceeds. This ensures that the taxpayer continues to have
market exposure during the conversion process, and also saves on the transaction fees that
may be levied when selling an investment position.


  • Generally I agree, and it's worth not being too greedy and trying to time the market bottom.

    For those over age 72, keep in mind that one has to take one's RMDs first. Even if one takes the distribution in kind, it still represents a higher percentage of the IRA than it would when stock prices were higher. So there is that tradeoff.

    OTOH, given current world conditions, taking this opportunity to satisfy an RMD with QCDs (qualified charitable distributions) doesn't seem like a bad idea.
  • edited March 9
    Generally agree. Depends what you consider a pullback. I’d prefer 30% or more. But Price’s TRBCX - a pretty good fund - was off more than 23% YTD as of yesterday. Might qualify for a long term investor. Likely to bounce today, however.

    If you like to gamble …. Perhaps play “Russian Roulette” with your portfolio?

    A Russian Roth?:)
Sign In or Register to comment.