Craig Wear, CFP®Craig Wear, CFP® | Expert in Roth Conversions & Tax-Efficient Retirement Strategies for IRA Millionaires

Which investments should you convert first in your Roth Conversion?

25 Nov 2024 · 1 min

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Craig Wear, CFP® explains that when doing Roth conversions over several years, investors should carefully choose which investments to convert first rather than using a simple pro rata approach. Financial firms commonly move a fixed percentage (e.g., 25%) of each holding into the Roth for convenience, but Wear argues you should prioritize converting the assets you most want to have future growth occur tax-free.

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If you're converting over a series of years then you want to think about which investments do I convert first and which ones remain in the IRA and I convert last. What's very common at the financial firms is they want to just take a pro rata amount of each of the investments and move it over. So if you have a thousand shares of Apple and you're going to be doing 25%, they'll just take 25% over. And if you also have an index fund they'll take 25% of that over. If you have a bond fund they'll take 25% of that over. And that's that's easy and it's clean and the pie charts look pretty. But that's probably not your best interest once that money gets over to that Roth. Think about what's about to happen. Whatever growth happens going forward is totally free of taxation. So you have to ask yourself which of these investments do I want to enjoy tax free growth on first.