My Portfolio is Down. Is Now a Good Time to Convert to Roth IRA?

Tom Vaughan is a Certified Portfolio Manager and CEO of Retirement Capital Strategies. Retirement Capital Strategies is a registered investment advisor located in San Jose, California.

The opinions voiced in these presentations are for general information only and are not intended to provide specific advice or recommendations for any individual(s). The information provided herein is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Statements and opinions are subject to change without notice. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Accordingly, you should not rely solely on the information contained in these materials in making any investment decision as the material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned in this presentation. Before acting on information discussed in this presentation, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment advisor. Prospectuses, investment objectives, risks, charges and expenses of any investment product should be reviewed carefully before investing. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Retirement Capital Strategies and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Tom Vaughan or Retirement Capital Strategies unless a client service agreement is in place. “Likes” are not intended to be endorsements of our firm, our advisors or our services. Please be aware that while we monitor comments and “likes” left on this page, we do not endorse or necessarily share the same opinions expressed by site users. While we appreciate your comments and feedback please be aware that any form of testimony from current or past clients about their experience with our firm is strictly forbidden under current securities laws. Please honor our request to limit your posts to industry-related educational information, comments and questions. Third-party rankings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation. Investment positions mentioned in these videos may be held in some of our existing portfolios. Tom Vaughan and Retirement Capital Strategies are unaffiliated and separate from those companies whose investment positions are mentioned and is not liable for their products or services.

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Transcript:

Easan Arulanantham:

My portfolio’s down, is now a good or bad time to start thinking about conversion of my Roth?

Tom Vaughan:

So let’s say I’ve got an IRA, just to make up a number of $100,000 in the IRA, and I want to convert, say, 50,000, because that’s all I can afford, I’ve got enough money to pay the taxes, that 50,000 is, you know, not enough to push me into a higher tax bracket. So maybe I stay in the 22, or the 24% bracket on the Fed basis. So when should I do that? Right. So theoretically, when the markets down like it is now is a better time because if the market rebounds, which it will, at some point in time, that 50,000 could grow to 60,000, I’d rather have it grow tax free in my Roth, back to 60,000, get an extra $10,000 tax free, then have that 50 grow back in my IRA, because now I got another $10,000 of taxable income in there. You know, it’s nice to get the growth. But I’d rather have that grow tax free, because worth more. Yep. I mean, a fair amount more. So. But there are some caveats. Number one, is Is this the lowest point?

I mean, okay, down 20, or whatever it was, you know, is that the point to do it? Because there would have been lots of points so far this year, you so that looks pretty low. And it turns out, it wasn’t a low point. And so you might look back and say, Wow, I wish I would have waited. I guess the way I look at that is just, you know, you can only really look at where you are today. And knowing where the things gonna go tomorrow is kind of a fool’s game, at least especially in when you’re looking at a conversion abroad. Yeah. It’s slower. And when it recovers, you’ll make money, right? So I’d probably do it for that purpose. But there’s some, there’s some problems with it, right? There’s some issues. So if you’re over 72, you have to take a Required Minimum Distribution, right? In order to do your Roth conversion, you have to take the RA that are the Required Minimum Distribution first. Okay, so that’s kind of complicated. What that means is the markets down, and the number is fixed based on this value at the end of last year, which was higher. So let’s say I have to take 10,000 out of that $100,000, which would be a lot, but bear with me, I’m actually having to sell more shares to get that $10,000 out now than I would have at the beginning of the year. And most of the times, we do it at the end of the year, because on average, the market goes up. And that 10,000 might grow to 11. And I can leave that extra 1000 in there. Yeah. But now I want to now we want to do this Roth conversion. Well, I’m going to have to take that 10,000 out at a low point. But I’m converting 50,000. So if I’m having to take out 10 For RMD. And converting 50.

Again, we’re making these numbers up. But is that still a win? Yeah, right. So it kind of depends on how big your Required Minimum Distribution is, and how big your you know, conversion is right. So I’d look at that. The other thing is that I have an awful lot of clients who are giving to charities, out of their requirement of distributions. And so it’s called a qualified charitable distribution QCD. And so these, these basically allow you to send directly out of your IRA, money to charity, that’s really cool. And none of that ends up on your tax return. So if you had to take 10,000 out, you could write out checks out of your IRA, for example, for $9,000. And that would end up on your taxes are not taxable. So that’s nice. And then you take the other 1000 out and meet your requirement. But again, if you’re going to do a Required Minimum Distribution, and a Qualified Charitable Distributions, all of those have to be done before you can do your Roth conversion. And so that can kind of complicate the math, and even just the logistics, you know, well, which charities do I want? Sometimes people are still deciding, you know, that kind of thing. So I still think it’s all worth it. I think it’s worth the hassle to figure that out. I think it’s probably worth in most cases, to take the RMD early, even though it’s at a low point, because you’re gonna gain more theoretically on that conversion. You know, he may be the market goes down, and it looks like a bad idea. But eventually, it comes up, you know, we have to believe at some point the markets gonna go higher than where it is today. You just, yeah. I mean, you look at the all I mean, the highest point prior to the crash of 2008. We are way above that. So, you know, the market does make money over the long term, at least it has, you know, in the past history.

Tom Vaughan is a Certified Portfolio Manager and CEO of Retirement Capital Strategies. Retirement Capital Strategies is a registered investment advisor located in San Jose, California.

The opinions voiced in these presentations are for general information only and are not intended to provide specific advice or recommendations for any individual(s). The information provided herein is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Statements and opinions are subject to change without notice. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Accordingly, you should not rely solely on the information contained in these materials in making any investment decision as the material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned in this presentation. Before acting on information discussed in this presentation, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment advisor. Prospectuses, investment objectives, risks, charges and expenses of any investment product should be reviewed carefully before investing. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Retirement Capital Strategies and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Tom Vaughan or Retirement Capital Strategies unless a client service agreement is in place. “Likes” are not intended to be endorsements of our firm, our advisors or our services. Please be aware that while we monitor comments and “likes” left on this page, we do not endorse or necessarily share the same opinions expressed by site users. While we appreciate your comments and feedback please be aware that any form of testimony from current or past clients about their experience with our firm is strictly forbidden under current securities laws. Please honor our request to limit your posts to industry-related educational information, comments and questions. Third-party rankings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation. Investment positions mentioned in these videos may be held in some of our existing portfolios. Tom Vaughan and Retirement Capital Strategies are unaffiliated and separate from those companies whose investment positions are mentioned and is not liable for their products or services.

By participating in any of these live streams, you agree that any questions submitted by you might be used by us in the future on this YouTube channel. We will not share your personal information.

If you have questions, please write to us at: asktom@talkmoneywithtom.com.

  • MoneyGuidePro®
  • Advent Software/Black Diamond Reporting
  • Riskalyze, Inc.
  • thinkpipes®
  • Right Capital
  • YCharts, Inc.