From 24/7 Wall St. · David Beren · · 1m 30s
Roth Conversion During Market Drop
Moving depressed shares into Roth avoids taxes on rebound.
In brief
Moving depressed shares into Roth avoids taxes on rebound. A buried IRS rule lets investors move shares from a traditional IRA into a Roth IRA at depressed prices, taxing the lower value while the rebound compounds tax-free. Originally reported by 24/7 Wall St..
Buried IRS Rule for Tax Discount
A buried IRS rule lets you move depressed shares into a Roth without selling, locking in a lower tax bill before the rebound arrives.
“A Roth conversion is not a sale”
Tax Advantage During Drawdown
You move identical shares from the traditional IRA into a Roth IRA without selling. The IRS taxes the transfer at the shares’ value on the transfer date.
Why In Kind Conversions Are Rare
In-kind conversions keep you continuously invested during market swings, avoiding the risk of missing a snap-back rally when selling.
Irreversible Mistake After 2018
The Tax Cuts and Jobs Act eliminated recharacterization of Roth conversions for tax years beginning after December 31, 2017, making the conversion irreversible.
Who Benefits From This Strategy
Holders of pre-tax traditional IRAs with cash outside the IRA to pay tax and who can leave converted balances untouched for five years benefit most.
How to Run the Strategy
Decide the dollar amount to convert based on tax you can pay from outside cash, split into portions, and request in-kind transfers with zero withholding.
Critical Question Before Converting
Can you pay the tax from money outside the IRA? If yes, the strategy taxes the depressed price while the rebound compounds tax-free.
Here's the gist
A buried IRS rule lets investors move shares from a traditional IRA into a Roth IRA at depressed prices, taxing the lower value while the rebound compounds tax-free.
