Converting to a Roth IRA While Markets Are Down Means Paying Taxes on Less Money

Converting a retirement account to a Roth IRA now means paying taxes on a smaller balance than before the market downturn — and that’s a tax bill you won’t get back. When the stock market declines, the value of traditional IRAs and 401(k)s falls with it. Suze Orman sees that drop not as a loss, but as a window: the less money you convert, the less income tax you pay. That’s because conversions from pre-tax accounts to Roth accounts are taxed as ordinary income in the year they occur. Do it while your portfolio is down, and you’re taxed on a lower amount. The trade-off is immediate — you pay taxes now — but the payoff is permanent. Once the money is in a Roth IRA, all future gains grow tax-free. Withdrawals after age 59½ (and after the account has been open five years) are also tax-free. Orman doesn’t care if you’re in a high or low tax bracket. Her stance is absolute: given rising federal tax rates over time and the likelihood of higher future rates, paying taxes today on a reduced balance is a strategic win. The math tightens further if markets rebound. The growth from today’s lower base accumulates without future tax drag. For those with traditional IRAs, 401(k)s, 403(b)s, or other eligible accounts, the conversion process is straightforward through providers like Fidelity or Vanguard — but the tax consequence must be calculated in advance. Speaking with a CPA is prudent. So is recognizing this moment for what it is: a chance to prepay taxes at a discount, courtesy of market volatility. Converting now allows investors to lock in lower tax costs and benefit from tax-free growth on future market recovery.