IRA Strategies During Hyperactive Markets

What goes down must go up...

Tariff related market movements have caught the attention of many investors, particularly IRA owners. Although markets have shown to stabilize when tariff threats are paused, the outlook remains uncertain. It's a good idea to keep two key points in mind: Market drops create opportunities for Roth IRA conversions, and the timing of a required minimum distribution could be even more important in a year like this one.

Should you complete a Roth conversion?

Under current tax laws, qualified Roth IRA distributions are tax-free.

Although anyone can contribute to a traditional IRA, the ability to contribute to a Roth IRA is limited by modified adjusted gross income. If your MAGI is over the limit, you cannot contribute to a Roth IRA. But there are no income limits on Roth conversions, which is the process of transferring all or a portion of a traditional IRA balance to a Roth IRA. It's always a good idea to consider making a traditional IRA contribution and then converting traditional IRA assets to a Roth IRA if MAGI is over the limit.

There are income tax implications to consider before completing a Roth conversion. Depending on the value of the IRA at the time of conversion, there could be additional taxable income as a result of the conversion and the tax cost that comes with it. This is why completing a Roth conversion during a market downturn could be a wise thing to do — a lower converted account value means a lower tax cost and, potentially, no tax cost at all.

Other reasons to consider a Roth conversion:

• Income tax rates are currently scheduled to increase in 2026.

• Completing a Roth conversion during market drags presents the opportunity to "buy low," one of the primary objectives of stock investing.

• There are no required minimum distributions from Roth IRA's.

Regarding RMD's

Required Minimum Distributions are amounts that the IRS requires you to withdraw annually from traditional IRA's after reaching a certain age (currently age 73).

Each year, the RMD has to be calculated based on age and the value of the account on the preceding December 31. For instance, a 2025 RMD would be based on the value of the account on December 31, 2024 — even if the value on the date of distribution is lower than it was previously.

Congress has periodically waived RMD requirements during periods of extreme market volatility. For example, this happened during the COVID-19 global pandemic in 2020. If market fluctuations reach dramatic levels again in 2025, it may be beneficial to wait until later in the year before taking an RMD to see if Congress might make any temporary changes to the requirement.

To learn more about Roth conversions, RMD's and the tax planning strategy of "filling your bracket", contact MNM Vested, LLC.