When the market drops and tax rates are low, it might feel like the wrong time to make a big financial move, but for Roth conversions, it could actually be the perfect moment. Hi everyone, I’m Alex Wolfe, a Certified Financial Planner and Head of Financial Planning at Base Wealth Management. Today, we’re diving into why a Roth conversion, during a-market downturn, and under today’s historically low U.S. tax rates, could be one of the smartest long-term moves for your financial future. Let’s start with taxes. Right now, federal income tax rates are near historic lows compared to past decades, but they’re scheduled to go up in 2026 when the provisions of the 2017 Tax Cuts and Job Acts expire unless extended. That means the same amount of income could be taxed at a higher rate later unless you act move money from a traditional IRA into a Roth IRA.
You pay taxes now on that converted amount, but once it’s in the Roth, it grows tax-free and qualified withdrawals are completely tax-free, potentially during your retirement. When the market is down, there’s even an extra advantage. You can convert depressed asset values at a lower tax cost. Then, when the market eventually recovers, and history shows it always does, those gains grow inside the Roth tax-free. Here’s why converting during a downturn can be very powerful. When your lower account values go down, it’s lower taxes today when you convert. Future recovery equals tax-free growth, and you’re locking in today’s lower tax rates before they potentially rise. And even best of all, there’s no required minimum distributions from those Roth accounts when you reach RMD age.
Think of it this way, would you rather pay taxes on a smaller balance today or a larger balance later at potentially higher rates? Conversions aren’t always right for everyone, so it’s important to run the numbers with a financial planner or tax advisor. But if you’re serious about building a more tax efficient retirement, a market dip could be your opportunity to plant those seeds for future growth. There is nothing certain about your tax rates in the future, but you know your tax rates right now. As the government struggles to balance the ever-growing budget deficit, there could be a time when they have to raise rates. Thanks for watching! If you found this video helpful, don’t forget to like, subscribe, and share with someone planning their future. I’m Alex Wolfe and we’ll see you next time.
