Craig Wear, CFP, explains which retirement assets to convert to Roth first. Convert high-growth assets like stocks and Bitcoin early, especially when they're down, so future gains grow tax-free. Save low-growth assets like bonds and cash for later conversions.
Here's the simple rule to remember. Whatever you move into a Roth gets to grow tax-free for the rest of your life. So the obvious question becomes, well, what assets do you want growing tax-free for the longest time? Your pre-tax money typically falls into 3 categories. High-growth investments, medium-growth investments, and you got it, low-growth investments. What we generally want to move first are what we call the high flyers or the high-growth investments. These are assets you believe have the highest long-term growth potential. Stocks, equity funds, Bitcoin funds, and other alternative investments. Sometimes even assets that are temporarily down, but you believe are going to recover. If something is down 10 or 15% and you think it's going to come back, converting it while it's down can be really powerful over the future. You pay tax on a lower value, and then all the recovery happens inside the Roth, totally tax-free. We also see this with certain real estate investments held inside of IRAs. I understand not everyone has that, but when they do, those assets often outproduce many traditional investments. Those are usually strong candidates to move earlier rather than later. What you typically want to save for last are cash, money market, lower growth bonds. They just don't benefit as much from the tax-free growth. Hey, you know what? Even a perfect Roth conversion plan cannot fix what's broken in your portfolio. There's 3 things that cause a lot of problems. One are your emotions, how you handle it in a down market. The other one are fees that you can't see. And the other are managers who consistently underperform what is possible. This is so important. There's, there's like a million or more dollars that are at stake for you if you're an IRA millionaire. So I've written a free booklet. That kind of goes through the math and shows you what kind of questions you can ask your advisors or yourself in determining if you're doing the right things that you need to for your portfolio during Roth conversions. So grab the link below and grab the booklet, see if it helps some. Take care.
