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Prepare for the Dip: Roth Conversion

Roth IRA

From time to time the entire market has substantial drops. On average since WWII, the S&P 500 has had a 40% drop from peak to trough roughly every 5 years. We have no idea when these drops will come and trying to time them is futile.

I would propose you have a path forward for when securities in your IRA drop in value that you believe are great long-term investments.

For example, let’s say that you own ABC stock, and it makes you $20,000 in your $100,000 portfolio.   The rest of your portfolio is going great and has appreciated to $110,000.  However, ABC has fallen on hard times and the stock is now valued at $12,000.

The dip is a great opportunity to convert your ABC stock to a Roth IRA.  When doing a Roth conversion you can pick the specific securities and shares that you would like to convert.

Nic note: The amount converted is taxed as ordinary income in the year of conversion.

The best conversions are often surgical and precise.  Always be looking for ways to turn lemons into lemonade!

IMPORTANT INFORMATION

Information in this material is for general information only and not intended as investment, tax, or legal advice. Please consult the appropriate professionals for specific information regarding your individual situation prior to making any financial decision.

This is a hypothetical example and is not representative of any specific investment. Your results may vary. A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax.

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