Craig Wear explains why people delay Roth conversions until late in the year, missing months of tax-free growth. Converting early lets your money compound tax-free for longer, not just avoid penalties. It's like booking a flight in November instead of early: you get worse options and worse results.
But while timing your tax payment prevents IRS penalties, it's not actually enough to fully safeguard your future wealth from taxes. For that, we need another layer to the plan. Because even people who plan for the tax correctly often make another mistake with the conversion itself. Let's say, you know, you're going to be spending the holidays with your family somewhere special at the end of the year. You already know the destination and roughly when you need to travel to get there. And right now, that's still months away. So figuring out the travel is really not something that you have to really worry about yet. But the year gets busy with family commitments, appointments, everything else that kind of competes for your attention. Suddenly it's late November and booking the flight is still on the to-do list. You search for tickets, but by then there are only a few flights left with awkward flight times, long layovers, and maybe limited seats. And the prices have skyrocketed because now it's early December. So you book the best options that's still available. You feel relieved that the trip is handled. Technically the plan worked, but that doesn't mean you booked the trip as effectively as you could have. That's how many people execute Roth conversions. They decide early in the year that they want to convert a certain amount, but with everything else happening during the year, the transaction often just gets pushed off into November or December. At that point, the conversion becomes a calendar deadline and converting the planned amount makes it feel like the strategy worked. But just like the plane tickets, completing the conversion doesn't mean it was done as effectively as it could have been. Unless you think the market is going to do poorly that year, converting sooner lets the money grow tax-free throughout the year instead of sitting in your IRA a little longer before making the move.
