Recent tariff-related market gyrations caught the attention of many wary investors, including IRA owners. Although markets (and the tariff situation) have stabilized a bit, the outlook remains uncertain. For this reason, you may want to keep two key points in mind: First, market dips create opportunities for Roth IRA conversions, and second, the timing of a required minimum distribution (RMD) could benefit from additional scrutiny this year.

Why consider a Roth conversion?

Under current legislation, qualified Roth distributions are tax-free. A Roth distribution is generally considered qualified if you have held the account for at least five years, and you are age 59½ or older, become permanently disabled, or die.

Although anyone can contribute to a traditional IRA, the ability to contribute to a Roth IRA is limited by an investor’s modified adjusted gross income (MAGI). If you are single and have a MAGI of $165,000 or more, or married, filing jointly, with a MAGI of $246,000 or more, you cannot contribute to a Roth IRA.  Since there are no income limits on conversions, if your income exceeds these thresholds, you might consider converting traditional IRA assets to a Roth instead.

The challenge is that converted assets are subject to federal income tax in the year of conversion and may also be subject to state taxes. Depending on the value of your account at the time of conversion, this could result in a substantial tax bill and may even bump you into a higher tax bracket. This is why, if you’ve been thinking about converting your traditional IRA to a Roth, a market downturn could be a prudent time to do so — a lower converted account value means a lower tax obligation. You might want to talk to a tax professional about “filling your bracket,” a strategy in which you convert as much as possible without breaching the next bracket.

Other reasons to consider converting:

• Hedge potential higher future tax rates.
• Converting assets during market dips means that you’re essentially “buying low,” one of the primary tenets of stock investing.
• Unlike traditional IRAs, you won’t be subject to RMDs from your Roth accounts.

A word of caution:

• If you are required to take an RMD in 2025 and would also like to convert traditional IRA assets to a Roth, note that the RMD must be taken prior to the conversion.
• An inherited traditional IRA cannot be converted to a Roth, but a spouse beneficiary who treats an inherited IRA as their own can convert the assets.

Prepared by Broadridge. Edited by BFSG. Copyright 2025.

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