Craig Wear, CFP® explains how market volatility should influence (but not paralyze) Roth IRA conversion planning. He emphasizes a long-term perspective: markets recover over time, conversions are usually spread over multiple years (typically 4–10 years), and systematic, periodic conversions (annual or quarterly) reduce timing risk. He warns against an emotional, all-or-nothing reaction to short-term market moves and suggests converting at a planned pace—often into higher tax brackets for larger balances—rather than trying to time market highs and lows.
Questions this video answers
Four to ten years.
2008.
Chapters
Hey, this is Craig Ware. So welcome back to the channel or the podcast, whichever you happen to be tuning in on. You know, we're getting a lot of questions from people asking about, you know, how do they deal with market volatility and their Roth conversions? How do they time when they should do the Roth conversions across over the, over the course of a year and they're concerned about the volatility, they're afraid and they're asking a few basic questions that really need to be addressed. So I thought I'd take just a couple minutes and share with you some ideas to some things that maybe get you thinking a little bit different direction, maybe a different perspective. And I've got some strategies to share at the end that I think will be helpful to you as well. The, the key issues that we hear and that maybe is on some of your mind is really on this screen, which is just, you know, what if I convert at the wrong time? The other is if the market does correct, or if I do convert at the wrong time, can I recover from paying the taxes at the higher amount? And then the big age old question, how do I determine the best timing to convert? So let's kind of break that down a little bit and let's talk about that first question. You know, what if you convert at the market corrects. Well, here's what everybody's afraid of, right? They're afraid of converting at the top and then paying the tax and then the, your balance be worth 20% less and you're starting off in your Roth with less money. And that's, I mean, I, I understand the concern, but it's very short sighted and I want to maybe help you with a different strategy of how to think about it a little bit different. Let's go back to 2008. That's probably one of the most stark contrasts that we started the year and ended the year. You remember, we started pretty high and then over the course of the year we had big correction back in October and things went way down. But if you add a little bit of perspective to it and you go look at the next 10 years afterwards, you can see that it really didn't matter a lot. It did at the time. And if you made the mistake of kind of pulling all your money out of the market and just sitting on your hands, then it took you a long, long time to recover. Had you just stayed invested, probably wouldn't have been a problem. But as it comes to Roth conversions, let's talk about how that performance really impacts the decision that you're going to make. If you're watching this, you probably have got a little bit of age on you, a little bit of gray hair, a little bit of. You've seen the market go up and down and up and down. And you know that this is really a true statement. Markets tend to recover over time, even after a severe downturn. And that's really crucial for you to understand that the long term implications of Roth conversions, and that is very simply that you have to take a longer term viewpoint. Very rarely is a one and done strategy. The optimal strategy to get your conversions done, and that's really where I want to end this on, is to give you some real specific ideas and things to think through that maybe will take a little bit of stress out of the decision for you. So normally if we do a custom Roth conversion for a client, we certainly have had some that have been a one and done, but normally that's not the best case. So normally it takes four to ten years in order to get the maximum tax avoidance and maximize your net worth. So if it's going to take four to 10 years, I wouldn't really stress out too much about what happens this year. I wouldn't let the volatility around the time of year and the particular election cycle that we're on bother you. I would just find your optimal game plan first. So figure out what is the right strategy, what's the right pace, how much should you convert over what period of time and it would bracket, normally speaking, you're going to want to convert at a higher bracket than what you think. And if you're an IRA millionaire and your advisor or CPA are telling you to convert just to the top of your tax bracket, or if they're telling you you make too much money, you don't need to convert. They just aren't specialists in this. They don't understand because the higher your income and the higher your balances, the better off you are to convert longer term. And that's proven mathematically. We do that every single day of the week. So if conversions are going to take four to 10 years, if you choose the wrong time this year, it's going to work out over the next several years. It's not like you're all in or all out. But that's the other key, is just to convert annually or at least systematically throughout the year. So you may decide, hey, just every January when the, when the lull is here, I'm just going to wait and convert every January the same dollar amount, you know, based on whatever strategy you come up with or you may decide, look, I don't know, the markets are volatile. I'm going to convert on the first day of every calendar quarter or something like that. So the key here is keep a long term perspective. And the goal is how do I maximize my tax avoidance and how do I maximize my net worth over my lifetimes? So I know the times can be a little bit volatile, but hopefully these are just a couple ideas to kind of get you thinking and get through the, the tough parts of dealing with the emotion of the, the markets and their roller coasters. Okay, dope. So I, I hope that was a little bit helpful to you. You know, the times are a little bit volatile and it raises up a lot of questions, most of which are more an emotional response to fear than anything else. And I get that we deal with that day in and day out. So I hope that some of this information gives you a little bit different perspective and give you some ideas of some strategies that you can use to implement to get the absolute best Roth conversion strategy you possibly can. If you like this kind of info, subscribe to the podcast, if you're watching this on podcast or like the video for me, and subscribe to the channel. And next time something comes to my mind that I feel like is worthwhile, I'll shoot it out and you'll be the first to know. Take care, have a great day.
