Craig Wear, a CFP, explains why Roth conversions planned in December often underperform. He uses a chess analogy to show that conversions work best when you position market conditions, income, and tax brackets throughout the year, not as a last-minute move. His research shows December conversions miss better windows.
A Roth conversion isn't something you do in an afternoon in December, click a few buttons and call it good. Just like in chess, the conversion itself may be one move, but the value comes from where all the pieces were before that move was made. There's the queen. It's the most flexible piece on the board. She can move in multiple directions. She can create great advantage, but only if she has the space to move. And if you rush her into the fray, your opponent will take her out before you had a chance to create that advantage. If the board is cramped, or the other pieces are in her way, the queen's power is limited. And Roth conversions are exactly that. The best opportunity may not show up in December. In fact, probably will not show up in December. It may show up when markets are temporarily up or down for each of the securities that you have. And when your income is lower than you expect, or when projections show there's still room in the current bracket, but you only get to use that opportunity if the rest of the board is ready. The queen is timing. Instead of assuming the right moment to convert is December, use timing to your advantage. Can make a massive difference. It lets you see when market conditions and your tax positioning actually line up. And you can only spot those when you have a full year to monitor and to act. What so many people do in Roth conversions is totally contrary to what got them to the success in the first part. Even advisors or CPAs will say, hey, just wait till December. We'll play cleanup. We'll figure it out. Look, our research has proven that December is actually the worst time of the year to convert if you consider all these different factors. And if you wait too long, the IRS will have moved their piece across the board and trap you. And if you move pieces into place in preparation, you're in a whole lot better position for checkmate.
