Schedule a quick 15-minute call with Aul Financial today to discuss your questions about today's market!

The “Perfect Storm” for a Roth Conversion

June 19, 2020

The “Perfect Storm” for a Roth Conversion

A recent Forbes article argued that right now is the best time in history to do a Roth conversion. That’s a bold statement, but at Aul Financial Group, we believe it’s true.

Why? There are many factors coming together in the market at one time — almost like a “perfect storm” in the best way! The market has dropped significantly (which, of course, no one enjoys). At the same time, we’re also experiencing historically low tax rates.

With a down market and low tax rates combined, a Roth conversion looks more and more enticing. Here’s why.

If you were going to convert $50,000-$100,000 to a Roth earlier in the year, you would have been working within a much larger market. Today, you can still convert that same $50,000-$100,000, but the market has shrunk, which means less tax burden to convert the money. When the market returns (and it will — it’s just a question of when), all the growth on that $50,000-$100,000 you converted will be growing not tax-deferred like in a regular IRA, but tax-free in a Roth. It’s the perfect time to take advantage of low tax rates so that when the market rebounds, you have the potential for gains to shoot through the roof!

What About RMDs?

Most people know by now that the government is not requiring retirees to withdraw their required minimum distributions this year. Is there another advantage to be gained from this?

At Aul Financial Group, we recently had one client sit with us and we figured out they were originally going to have to withdraw about $40,000 in RMDs. We offered the idea that they could use that money they were planning on taking out to pay the taxes on a Roth conversion.

That $40,000 got them about $130,000-$150,000 from their IRA into a Roth account. If the market returns next year and the required minimum distributions come back, our client won’t have to make a required minimum distribution on that Roth account, and their traditional IRA will have a lower balance. While this is one specific example, this could truly be a “perfect storm” type deal!

Of course, hopefully the market won’t stay down very long. But if it doesn’t, that means you have even less time to convert to a Roth. It likely makes a lot of sense for you to do a conversion now. Don’t wait!

Call our office today at 636-230-8824, or send us a message on our Contact page and we’ll get in touch with you! We can help you make that conversion and save a lot of money for retirement!

Any media logos and/or trademarks contained herein are the property of their respective owners and no endorsement by those owners of Aul Financial Group, LLC is stated or implied. The Aul Financial Hour is a paid placement.