The Roth IRA has been around since 1997 with little change to its structure. I am not a fan because I feel that too many taxpayers are depositing to a Roth IRA with after tax dollars vs increasing their deposits to a pre-tax company plan. I also feel that there will be significant tax law changes once Congress looks at the billions of dollars that can be withdrawn from these account tax-free. However, due to the current market conditions reducing the value of Traditional IRA accounts, I may be swayed to change my mind.
Consider a Roth conversion. If your retirement savings are heavily invested in tax-deferred accounts, such as 401(k) s and IRAs, you may want to take advantage of their diminished value and convert to a Roth IRA. You’ll pay the taxes now instead of in retirement, and your tax bill will be based on the value of your account when you convert.
Let’s assume that you were planning to convert $100,000 in 2020 and that $100,000 is now worth just $70,000. Converting the lower amount will not only lead to a lower tax bill but also allow the $30,000 rebound, whenever it comes (based on historical performance which is not guaranteed, of course), to be tax-free. Keep in mind the funds have to be in the Roth for a minimum of 5 years to be withdrawn tax free.