A common feeling people get when they experience a market downturn is:

Concern.

Concern about their portfolio.
Concern about their timeline.
Concern about whether they should be doing something different.

That reaction is completely normal.

But every so often, a falling market can create something else.

An opportunity.

A Quick Refresher on How Traditional IRAs Work

Many investors accumulate a Traditional IRA over time, often by rolling over an old 401(k).

The structure is straightforward:

• Contributions are made pre-tax
• Growth is tax-deferred
• Withdrawals are taxed as ordinary income (Accounts with after-tax (non-deductible) contributions may be subject to different tax treatment)

In simple terms, the IRS gets paid later.

That can be beneficial during your working years. But in retirement, it can also create a future tax liability that is larger than expected.

Enter the Roth Conversion

A Roth conversion is a strategy that allows you to shift money from a pre-tax account into a tax-free one, subject to IRS rules.

You move funds from a Traditional IRA into a Roth IRA and pay taxes on the amount converted today.

In exchange (subject to applicable IRS holding period and distribution requirements):

• Future growth can be tax-free
• Withdrawals in retirement can be tax-free
• There are no required minimum distributions on Roth IRA assets

The goal is simple.

Pay taxes now, potentially at a lower rate, to reduce taxes later.

Why Market Declines Can Change the Math

This is where timing starts to matter.

Let’s walk through a simple example.

Scenario

You have $100,000 in a Traditional IRA and are considering converting half to a Roth.

If you convert $50,000, you will owe taxes on that full amount.

Now let’s introduce a market decline.

Your portfolio drops from $100,000 to $50,000.

If you still want to convert half, you are now converting $25,000 instead of $50,000.

Same percentage.

Very different tax bill.

The example above is for educational and illustrative purposes only. It does not represent actual client results or guarantee future outcomes. Market values may not recover as illustrated, and individual tax situations vary. Consult a qualified tax professional before implementing any conversion strategy.

What Happens If Markets Recover?

Let’s say the market rebounds and your portfolio returns to $100,000.

Here is where it gets interesting.

You could now have:

• $50,000 in a Traditional IRA
• $50,000 in a Roth IRA

Same total value.

But a very different tax profile.

A portion of your portfolio has now shifted into a tax-free bucket, and the growth on those converted assets is no longer subject to future income taxes.

What This Really Means

A down market can allow you to:

• Convert more shares at lower values
• Pay taxes on a smaller dollar amount
• Position future growth inside a tax-free account

It is not about trying to time the market perfectly.

It is about recognizing when valuations temporarily create a more favorable tax environment.

But This Is Not Automatic

Roth conversions are not always the right move.

Because every dollar converted is treated as taxable income, there are important considerations:

• Do you have cash available to pay the taxes?
• Will the conversion push you into a higher tax bracket?
• Are your current tax rates lower than what you expect in the future?
• How does this impact Medicare premiums or other income-based thresholds?

In some cases, the answer is clear.

In others, the better decision may be to wait or not convert at all.

The Bigger Takeaway

Market declines are uncomfortable.

There is no way around that.

But they can also create planning opportunities that might be missed if you are only focused on short-term performance.

For the right situation, using the market downturn as a planning opportunity can lead to meaningful tax-free growth over time and more flexibility in retirement.

Not every down market creates an opportunity.

But some do.

And the difference often comes down to having a plan in place before the opportunity appears.

We’d love to hear your thoughts! Just reply to this email with any questions or feedback.
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​Keeping wealth in focus,

The MY Wealth Management Team