These are uncertain times. People are getting laid off, the stock market has taken a hit, and and there are a lot of unanswered questions.
But this is also the perfect opportunity to get your retirement plan in order. In fact, there are many reasons that doing a Roth conversion is a great decision. And even better? It’s not hard to do.
Take advantage of the situation
You are already probably aware that the stock market is worth a lot less than it was a month ago. But while your portfolio is down, take advantage of the situation by taking the money you have currently invested in your Traditional IRA’s, 401(k)’s, 403(b)’s or TSP accounts and convert them into a Roth IRA or Roth 401k.
Why is the timing so perfect? Allow me to explain.
The stock market is down roughly 30% and the retirement accounts that are invested in the stock market are worth less than it was just a month ago. But this also means that you’ll pay less taxes on the Roth conversion than you would have a few months ago, when the stock market was higher.
And if you’ve received a hit to your income, this can actually benefit you as well. (Double whammy!) You get to convert a lot more money to a Roth because the values are down, but you also may pay a lot less taxes because your income is also down.
Roth conversions are sometimes tricky to do, so I would always recommend that you get professional counsel so that you don’t screw it up. Doing a Roth conversion incorrectly will cost you; new rules prevent you from going back and undoing it if you change your mind.
Now, here’s the real upside to a Roth conversion. You’ll pay a little in taxes upfront, but your contributions will grow tax-free inside that account for the rest of your life. You won’t even have to pay taxes when you take the money out.
Our country’s government has a spending problem. It is estimated that the upcoming coronavirus (COVID-19) stimulus package will cost over $6 trillion. Someone has to pay for that (including all the other debt we’ve incurred from the years of over spending). It’s just simple math.
Taxes have to go up at some point. So consider taking advantage of times like this to do some Roth conversions. Pay those taxes now while rates are at their lowest, instead of in a few years when they will be a lot higher.