Smart Year-End Tax Move: Convert to a Roth Account while Conversions Are “On Sale” 

Let’s be honest: It has not been a fun year in the markets. With the S&P 500 down more than 20% from its highs in January (and other major indices in similar territory), good news has been about as scarce as hen’s teeth. But they say that every cloud has a silver lining, and, as it turns out, there’s a bit of good news for investors, even when the markets are in the doldrums, as they are currently. One such opportunity is the chance presented to acquire holdings in companies that are otherwise well-run at “bargain prices.”  

But for those with traditional IRAs, there’s another potential benefit to the currently depressed market prices: converting traditional to Roth accounts while account values are down can provide tax savings, both now and later. 

Most of us know that with a traditional IRA, you get a reduction to taxable income for funds deposited into the account during the year. Assets in the account grow tax-free until retirement, and when you start withdrawing the funds after age 59 ½, you pay taxes on the withdrawals as ordinary income. You must begin making required minimum withdrawals (RMDs) by the time you reach age 72. 

With a Roth IRA, it works a little differently. You don’t get a tax deduction for making deposits to the account, though the money still grows tax-free. But here’s a very important additional difference: when you start withdrawing funds in retirement, you don’t pay taxes on the withdrawals. Not only that, but Roth accounts have no RMDs; you can leave the money in the account as long as you want, or even pass the account on to an heir, if you want. 

For these reasons, Roth IRAs are generally preferred by those who believe they may be in a higher tax bracket in retirement than presently. For example, a sole proprietor who is still actively running the business has access to ordinary business deductions to help reduce the overall tax bill. But once the proprietor retires, many of those deductions may no longer be available. For such individuals, paying taxes now in order to create tax-free income later can be a smart move. 

But what if you’ve already got a traditional IRA? You can convert it to a Roth account, but you must pay taxes on the amount of the conversion, since those funds have never been taxed. And that’s why converting a traditional account now—when account values are likely depressed—can make sense. You pay taxes on a lower value while moving that value into a Roth account that can create tax-free income for you later, when you may be in a higher tax bracket. 

And speaking of higher tax brackets, there are plenty of reasons to think that brackets may be rising in the future. For one thing, the lower brackets created as part of the Tax Cuts and Jobs Act of 2017 are set to expire in 2025. Also, for other reasons, some analysts expect brackets to rise in the future. The lower your bracket when you do the Roth conversion, the less you pay now in order to achieve tax-free income in the future. 

As with any such decision, you should talk with your tax advisor before taking action. But this could be a year when Roth conversions are “on sale.” 

For more year-end tax-saving ideas, read our article, “Year-End Strategies for Charitable Giving: 2022 Edition.” 

* * *

Subscribe and get more posts like this

"*" indicates required fields

Sign up:
This field is for validation purposes and should be left unchanged.

You can unsubscribe anytime


Leave a Comment

Yes, investment returns matter. But your basic assumptions about and behavior toward money will probably impact your finances – and your eventual wealth – more than you currently imagine.
For long-term investors, knowing the difference between what can and cannot be controlled is the key to both financial success and peace of mind. While all investors would like to believe they can predict the direction of the market, experience teaches us that this is difficult to do.

What can we help you find?

Griffin Black Portal

  • Investment Reporting
  • Meeting Notes
  • Account Statements
  • Single Signon to eMoney
  • Billing Statements
  • Document Sharing
  • Tax Statements (1099s, etc)

emX / eMoney

  • Financial Planning Tool
  • Account Aggregator
  • Budgeting & Spending


  • e-Delivery – Going Paperless
  • Tax Documents (1099, 1099R, etc.)
  • Account Statements
  • Pershing Communications