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COVID-19 May Boost Roth Conversions – Episode 240

Adam Talks

IRA Financial’s Adam Bergman discusses the impact the COVID-19 pandemic is having on retirement account holders and why it may boost Roth conversions.

Unfortunately, the COVID-19 pandemic is still running rampant in the US. Reopening states has led to an uptick in cases, forcing many state governments to roll back their plans. Southern states have seen record numbers, while states like New York and New Jersey are seeing less cases. It is clear that the coronavirus is not letting up anytime soon. Of course, finances are a major concern for all Americans, including retirement savers. This is why Mr. Bergman thinks we’ll see more Roth conversions for both IRAs and 401(k) plans.

Why Convert to a Roth?

Under normal circumstances, the best reason to convert to a Roth is to pay taxes now at a known rate and enjoy tax-free distributions during retirement. Conversions can done with traditional IRAs and 401(k) plans. In fact, if you are a high income earner, the only way to fund a Roth IRA is via a conversion. Traditional plans are funded with pre-tax money, giving you an immediate tax break. Pay no taxes on any money you contribute. Those taxes are deferred until retirement.

On the other hand, a Roth plan is funded with after-tax money, meaning there is no upfront tax break. However, all qualified distributions are tax-free. To be qualified, the account must be open at least five year and you must be at least age 59 1/2. For those nearing retirement, a Roth conversion may not make sense. However, if you are a younger saver, years of tax-free growth will lead to a large retirement account. The best part is the entire account balance can be withdrawn tax-free during retirement!

Further, many companies are starting to offer a Roth 401(k) option. Anyone can fund this plan, no matter your annual income. However, Roth 401(k) plans are subject to the RMD rules, meaning you must start withdrawing from the plan at age 72. Alternatively, Roth IRAs do not require distributions. One can rollover Roth 401(k) funds to a Roth IRA to avoid these mandatory withdrawals.

Why Convert Now?

COVID-19 has lead to historic lows in interest rates, among other things. Retirement account balances are lower than they were a year ago. Government spending has been rampart to try to keep the economy afloat, which will certainly lead to inflation and possible higher taxes in the near future. Further, the Democratic hopeful, Joe Biden, has stated taxes will rise if elected president. Higher taxes are inevitable because of the current financial climate. These are the main reasons why Roth conversion make sense this year.

With American’s suffering losses this year, you can make up for them by converting now. We know what the taxes are right now. It may make sense for millions of Americans to convert right now. Of course, it’s not right for everyone. If you have managed to sustain your earnings/investments throughout the pandemic and you are maxing out your potential earnings, it may not make sense to convert.

As mentioned, Roth plans are ideal for younger workers. They have not yet reached their earning potential. It makes sense to skip the tax break now, to reap the rewards of tax-free withdrawals later. Either way, it’s nice to have your retirement savings properly diversified. This includes the tax treatment, in addition to your investments. So, it’s generally better to have funds invested in both traditional and Roth plans.


Although the COVID-19 pandemic has affected everyone, there are some things you can do to limit your finances from being decimated. Among those, may be Roth conversions. You should speak with a financial advisor to see if a conversion makes sense in your situation. Your age, earnings, investment choices all play a factor. There is no “one size fits all” solution. Crunch the numbers and see how a conversion may help you!

As always, thanks for listening to the podcast! Be sure to check out our SoundCloud page for more discussions about all things retirement related.


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