Why You Should Consider a Roth Conversion While the Market Is Down

In this clip from "Financial Planning Q&A 60" on Motley Fool Live, recorded on Jan. 26, Motley Fool contributors Robert Brokamp and Dan Caplinger discuss why a Roth conversion amid a market downturn can be beneficial.

Robert Brokamp: One possibility is now could be a time to do a Roth conversion. We've talked before on the show why Roth assets make sense particularly now. We are at tax rates that are at levels not seen in decades in terms of being very low. Tax rates are expected to go up. In fact, they will go up at the end of 2025 when the tax law that was passed in 2017 sunsets. But, of course, people think taxes are going to go up anyhow because there are so many government deficits, Medicare is underfunded, Social Security's underfunded, the money's got to come from somewhere. Having Roth assets is great because you pay taxes today when your tax rate may be lower and the assets grow tax-free, as long as you follow the rules. If you expect to be in the same or a higher tax bracket in the future, Roth makes sense. Why would you do a Roth conversion now? When you convert assets from Traditional to Roth, the amount you convert gets added to your taxable income this year. If you had an account that was, let's say $100,000, but it's now down to $80,000 and you make that conversion, you are converting at a lower amount, that adds less taxable income to your income this year. You're converting when stocks are down and then you ideally will benefit when they eventually recover. Those are some few thoughts about that. Dan, what are your thoughts on doing Roth conversions now? If you have questions about Roth conversions, specifically, feel free to ask those in the Slido as well.

Source Fool.com