Craig Wear shows how to pair Roth conversions with market timing, converting growth assets when they're down. A 62-year-old couple with multi-million dollar IRAs could add an extra quarter-million in tax-free growth over time by converting depressed assets and keeping growth holdings in Roths.
62 years old.
As much as an extra $250,000.
About a four- to seven- or eight-year time frame.
A Roth conversion game plan without the right investment strategy is kind of like owning a Ferrari, but you don't have any gas to put in it. So we worked with, we'll call them Jim and Sarah, and we've worked with lots of Jim and Sarahs. They're both 62 years old. They had a couple million dollars in IRAs. By converting their investments strategically, during times when there were dips in the value of that, each particular asset, or a market downturn, they moved assets into their Roth when the valuations were a little bit lower. And then as the market recovered, all that growth became tax free. And while it's not a really huge deal, it can make a big difference over time. It could mean in some of the testing we've done, there could be as much as an extra quarter million dollars of benefit that comes from actually getting the investment part of the conversion done correctly. I'll give you a couple of bullet points and a few things to think about in that regard. Some people say, what do I move first? Well, you want to start with the growth assets. Growth assets belong in your Roth before the other assets. So you start with the things that you believe have the greatest opportunity of growth first or those that are maybe depressed and you think they're going to ricochet and come back up. You want to start there and then look at your market downturns as opportunities. When you convert stock or an ETF or a bond at a lower valuation, it reduces the taxes on that. It allows you to convert more shares, if you will, and it multiplies growth if and when the market comes back. So downturns are really good opportunities to get some real benefit from your investment strategy. The other thing is, remember that your risk alignment doesn't change. Your conversions shouldn't change your overall risk tolerance. It just changes where growth happens. The last point is that you have systematic versus opportunistic conversions. And you got to figure what your game plan is. You either convert on a schedule and then accelerate during downturns, which means you need to watch each asset for swings in price relative to what their usual patterns are. And if you watch it closely, it'll, it'll help. Sometimes that's hard to do. And as you're talking about a six to, well, a four to seven or eight year time frame of doing that month in and month out, it can be a little bit laborious, but we've seen that it does make a difference. So your investments and your conversions aren't separate. They have to work together. If you'd like to see kind of the big picture on what the potential is, what you can save through doing conversions. Click on the button below and I'd like to show you some of the work we've done that will and a tool that we've developed that'll help you to do that. Take care of.
