Deciding Whether or Not To Do a Roth Conversion — A 3-Step Method

Much is made about the many methods to determine whether or not you should make a Roth IRA conversion. It seems as if this very strategy has been the quintessential tax planning move of the last decade since income limits and restrictions were eliminated in 2010.

As market volatility has caused losses in 2022, it’s also enhanced the opportunity for Roth IRA conversion. Lower prices mean creating less taxable income when converting the same number of shares of an investment. In short, Roth IRA conversions are on sale in 2022.

While that sale may make a Roth IRA conversion a real possibility, what’s harder to do is to determine whether or not it will eventually be worth it. After all, a Roth IRA conversion means you’re paying — and locking in — tax today in opposition to an unknown result in the future.

For this reason, I’ve developed a simple and straightforward three-step method for determining if you should make a Roth IRA conversion. In theory, this method will always be valid. However, it’s especially useful while the Tax Cuts and Jobs Act of 2017 (TCJA) tax rates are in effect. I’ll explain why later.

For now, let’s dig into the three-step method.