Roth Conversion while IRA Balances are Down Due to Market Correction
I have several clients that I do Roth conversions for every year, since they are in a favorable tax bracket. This year, since accounts are down so much due to the coronavirus correction, I am looking at doing the conversions now so that when the market recovers, the amount converted will recover tax free in the Roth.
Obviously it is always best to pay taxes out of pocket. However, I have one client that always wants to withhold taxes from the account (he is over 59 & 1/2). Is there any advantage/disadvantage to go ahead and do the conversion now? Does the fact that we are withholding the taxes from the account negate the benefit of the conversion being down in the down market?
For the questions, assume all holdings (performance) will be the same across IRA and Roth accounts. Thanks.
Permalink Submitted by Alan - IRA critic on Mon, 2020-03-16 17:17
It just means that the withheld amount will not recover (or drop further) since it will not remain in either IRA. However, if he does not have the funds to pay the conversion taxes, converted without any withholding and had to take another distribution later on to pay the taxes, that would be similar except he would have a larger taxable distribution and a larger conversion.