Roth IRA Conversion During Coronavirus – Is Now the Right Time?

Cheryl Shelton, JD

Tax Supervisor


Roth IRA’s have two big tax advantages:  Tax-free withdrawals and exemption from required minimum distributions.  But converting a traditional IRA into a Roth IRA is a taxable distribution.  While in the midst of the coronavirus, is 2020 the right time to make the conversion?

Here are some reasons why it might be the ideal time to do a complete or partial conversion:

  • Low tax rates
  • Stock market decline
  • Reduced income

The tax rates are the lowest they have been in a while due to the TCJA (they are scheduled to last through 2025).  If your tax rate during retirement will be the same or higher than your current rate, then considering a conversion now may be a good idea for you.

It’s in the news every day; the stock market is down more than usual.  But this could be another good reason to make the conversion to a Roth IRA.  You’ll pay taxes on the current value of the pre-tax assets being converted, which would be lower because of reduced share prices.   In the future when we all return to normal and the market rebounds, you’ll enjoy tax-free growth potential and tax-free withdrawal of the assets.

Since the start of the coronavirus pandemic, you may be anticipating your income for 2020 to be much lower than the previous year. This could put you in a lower tax bracket for the current tax year.  If so, the tax required to be paid on the conversion could be significantly lower.

Completing a Roth IRA conversion when tax rates are lower and the market is down may save you money on the taxes due upon conversion.  Therefore, this might be the ideal time to consider the tax advantages of converting your traditional IRA to a Roth IRA.

If you would like to explore whether a Roth IRA conversion is right for you, please contact your WFY advisor or contact us here.

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