Should I do a Roth IRA conversion when the market is down?

When markets are volatile, it’s natural to worry when you see your retirement account balance drop. After a few years of elevated inflation, higher interest rates and headline-grabbing market swings, it can be tempting to pull back and wait things out.

But a market downturn sometimes can create an opportunity, especially if you’ve been wondering whether to convert some of your traditional IRA or 401(k) money to a Roth IRA. Because you pay income tax on the amount you convert, doing a Roth conversion when your account balance is temporarily lower may reduce your tax bill.

We’ll walk through how Roth IRA conversions work, why down markets can be a tax-efficient time to convert, who a conversion may (and may not) make sense for, and how to decide whether it fits your long-term retirement strategy.

A Roth IRA conversion means moving money from a tax-deferred retirement account, like a traditional IRA or 401(k), into a Roth IRA.

You won’t get a tax break on contributions to a Roth IRA like you might with a traditional IRA. Instead, the benefit comes later. Money in a Roth IRA grows tax-deferred, and as long as you meet certain requirements, you can withdraw it tax-free in retirement. Generally, that means you’re at least 59½ and have had a Roth IRA for five years.¹ ²

Unlike direct Roth contributions, which phase out at higher income levels, there’s no income ceiling on conversions. Anyone with a traditional IRA or 401(k) can convert, regardless of what they earn.

If you think your tax rate may be higher in the future, paying taxes now through a Roth conversion can make sense. Just keep in mind that the amount you convert is treated as taxable income in the year you convert it, so it helps to have cash on hand to cover the tax bill.

Related: Is paying taxes on a Roth conversion worth it?

The primary reason to consider a Roth conversion during a down market is this: The IRS taxes you on the value of what you convert, not on what those assets were worth before the market dropped.

Here’s what that can mean in practice. Say you hold $100,000 in a traditional IRA and a market downturn brings that value to $75,000. If you convert during the dip, you pay income tax on $75,000, not $100,000. When the market recovers, all of that recovery happens inside your Roth IRA, where future growth is tax-free.

Even at a 22% tax rate, the difference between converting $75,000 versus $100,000 is roughly $5,500. That’s money that stays in your pocket—and if reinvested, can continue to grow.

Example for illustrative purposes only. Actual tax impact depends on your full income picture, filing status and applicable deductions.

Additional benefits of a Roth conversion during a down market:

• Lower taxable income. You pay tax on the temporarily reduced value of your assets, not their peak value.
• Tax-free recovery. When the market rebounds, those gains accumulate inside your Roth, where qualified withdrawals are tax-free.
• More shares for the same tax cost. Depressed prices mean you can convert the same positions for less taxable income.
• Reduced future RMDs. Moving money out of a traditional IRA now means less subject to required minimum distributions later.
• Potential estate planning advantages. Roth IRAs passed to heirs continue to grow tax-free, which can be a meaningful legacy benefit.

Paying taxes now in exchange for tax-free withdrawals later may be advantageous for some investors but not others.

In general, a Roth IRA conversion may be worth considering if:

• You expect your income or tax rate to rise. If your peak earning years or higher tax brackets are still ahead of you, paying tax at today’s rate on converted dollars may be preferable to paying a higher rate later. Converting some or all of your retirement assets also can give you more tax diversification in retirement.
• You may be concerned about future tax changes. Even though current tax rates were recently extended through new legislation, tax laws can change at any time. If you expect to be in a higher tax bracket later in life, paying taxes now on a Roth conversion—when your rates are known—still may be worth considering.
• You want to reduce RMDS. Workplace plans and traditional IRAs come with RMDs that must begin at a specific age. Roth IRAs don’t have RMDs for the original account owner, which may give you more flexibility and potentially leave more assets for your heirs.
• You have cash available to pay the taxes. A Roth conversion, especially during a bear market, still can result in a sizable tax bill. Using money from the account itself or electing tax withholding to pay that bill can reduce your retirement savings and, if you’re under age 59½, may trigger a 10% early withdrawal penalty on the portion taken to pay taxes.^1,2,3

For many people, the years between leaving full-time work and the age when required minimum distributions begin (currently age 73) represent the prime window for Roth conversions.

During this gap, earned income has typically stopped, Social Security may not have started yet, and RMDs haven’t kicked in. That means your taxable income is often at its lowest point in decades. Tax brackets that were inaccessible during your working years may suddenly have room, making it possible to convert meaningful amounts at moderate tax rates.

If markets are also down during this period, you may have two advantages working in your favor at once: lower account values and a lower tax bracket. That combination doesn’t come around often. A Thrivent financial advisor can help you model how much to convert each year to make the most of this window before it closes.

A Roth IRA conversion is a long-term decision, and it isn’t right for everyone. A few situations where you may want to be cautious include:

• You’re close to a higher tax bracket or income threshold. The amount you convert counts as taxable income for the year. A large conversion could push you into a higher bracket or affect deductions and credits.
• You’re concerned about Medicare premiums or Social Security taxation. Conversion income can increase the income used to determine Medicare Part B and Part D premiums, and the timing matters. Medicare uses your income from two years prior to set your premiums, so a larger conversion this year could raise what you pay in two years. For 2026, the IRMAA surcharge begins at $109,000 for single filers and $218,000 for married couples filing jointly. Exceeding those thresholds by even $1 can trigger the full surcharge, so modeling the conversion amount carefully is key.
• You may need the money in the near term. Unlike regular Roth contributions, if you’re under 59½, converted amounts generally must stay in the account for at least five years to avoid a 10% early withdrawal penalty.¹ If you think you’ll need those funds soon, a conversion may not be the best fit.
• You’re uncomfortable with the permanence of the decision. Since 2018, you’re no longer allowed to “recharacterize” a Roth conversion (essentially “undoing” it). Once you convert, you can’t reverse the tax consequences. That’s also why it’s worth knowing about the pro-rata rule if your IRAs hold a mix of pre-tax and after-tax dollars; the IRS treats each conversion as a proportional slice of your total IRA balance, not just the pre-tax portion.

Understanding how current tax law works can help you decide when and whether a Roth IRA conversion makes sense for you, especially in a down market.

In late 2025, Congress passed legislation that locked in the seven federal income tax brackets, ranging from 10% at the low end up to 37% at the top. The IRS also adjusted those brackets for inflation for 2026. That means you won’t see an automatic jump in tax rates simply because a previous law was set to expire; the rates you have today are likely to stay in place for the near future, barring another major legislative change.

Even with rate stability, there are two main reasons why Roth conversion timing deserves thoughtful consideration:

1. Your individual tax bracket matters. When you convert pre-tax dollars to a Roth IRA, the amount you convert is added to your taxable income for the year. If that pushes you into a higher tax bracket—or increases taxes on things like Medicare premiums or certain Social Security benefits—the conversion could end up costing you more in the short term than you expected.

2. Your personal future tax outlook still matters. While broad tax rates aren’t scheduled to spike automatically, future tax policy could change at any time. If you expect your income (and tax rate) to be higher in retirement—or if future lawmakers raise rates—paying tax now at known rates could be an advantage.

• Standard deductions and income thresholds also have been increased, which may reduce your taxable income in the year you convert.
• Roth IRAs continue to offer tax-free qualified withdrawals and no required minimum distributions for original owners, features that still make conversions attractive for many.
• Higher income years (e.g., receiving a bonus or taking large traditional IRA distributions) can make a conversion more expensive, so many financial advisors recommend spacing conversions over multiple years.

See how Roth vs. traditional IRA savings compare

Before you decide whether a Roth IRA—or a Roth conversion—fits your plan, it may help to see the potential long-term impact. Our Roth IRA Calculator lets you compare how a Roth IRA and a traditional IRA might perform over time so you can weigh the benefit of tax-free withdrawals in retirement.

Try the calculator

In a perfect world, you’d time your Roth conversion for the exact bottom of a market downturn. In reality, no one knows when major indexes like the S&P 500 have truly hit their low point.

That’s why many investors choose a “divide and conquer” approach instead of converting everything at once—a strategy often called bracket filling. The idea is to calculate how much room remains within your current tax bracket and convert up to that ceiling each year, without spilling into a higher bracket. For example, in 2026 the 22% bracket for married couples filing jointly extends up to $211,400. If your other income leaves significant room below that threshold, you may be able to convert a meaningful amount while staying at that rate.

If you plan to convert a larger amount over the year, you might:

• Convert part of the balance early in the year and another portion later.
• Spread smaller conversions across several months or quarters.

This approach can help you:

• Manage market risk. If the market continues to drop, future conversions may occur at lower values, potentially reducing the taxable income. If the market rises, at least some of your earlier conversions may benefit from that recovery inside the Roth.
• Fine-tune your annual tax bill. As income and deductions come into focus throughout the year, you and your tax professional can adjust the size and timing of additional conversions to help avoid unintentionally bumping into a higher tax bracket or key income thresholds.

There’s no IRS limit on the number of Roth conversions you can perform in a year. The main tradeoffs are the additional paperwork and coordination. Your financial advisor can help you structure a conversion schedule that fits both your risk tolerance and your tax plan.

Splitting up your Roth conversion in this way has at least two main advantages:

• It can reduce the tax cost if markets drop again. If the market falls after your first conversion, later conversions could happen at lower prices, which means less taxable income for the same number of shares.
• It gives you more control over your tax picture. For example, if you receive a year-end bonus and see that an additional conversion would push you into a higher tax bracket, you may decide to pause or reduce the final conversion amount for the year. Spreading conversions out gives you room to respond to changing income, tax laws and market conditions.

A Roth conversion is a personal decision that depends on your tax situation, income needs, retirement timeline and goals. A down market can make the timing work in your favor, but the right move depends on your full financial picture, not just today's headlines.

A Thrivent financial advisor can partner with you and your tax professional to model conversion amounts, estimate the tax impact and build a strategy that fits your retirement, legacy and generosity goals.

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