Craig Wear, CFP, recommends converting growth assets from a traditional IRA to a Roth in January to capture tax-free appreciation. An internal study shows early-year conversions add significant value compared to the common end-of-year approach. For most clients, one January conversion is simple and effective.
Now, nobody has a crystal ball to predict the future, but this strategy helps people stay ahead more often than not. You put 2 dates on the calendar every year. The first one is in January. That's your first conversion date. Before you move a dollar, you got to answer one question. Where do you want this year's growth to happen? In the IRA or in the Roth? Because whatever grows inside that traditional IRA, you're going to pay tax on eventually. Whatever grows in the Roth, well, you never will. You already paid the tax to get it out of there. Look, we've done extensive study around the best timing for making conversions. Actually, we've developed a separate service that we offer to clients for just this one thing. But what we learned from that study was that converting early in the year adds significant value to your accounts compared to waiting until later in the year, or when most people do at the end of the year, which is what their advisors tell them to do. You've got to convert early and you've got to convert the right things. You move your growth assets first and you leave the conservative side behind. Your overall mix doesn't change at all. You've just relocated the growth to the side of the IRS just isn't going to touch. Now, look, if markets are volatile, you can spread conversions through the year and pile in on a big downturn, which is really smart. But if you don't want to mess with that, then January is a great option. Check, get it done.
