On this episode of Adam Talks, tax attorney and IRA Financial’s founder, Adam Bergman, Esq., discusses an upside to a market crash and that is the ability to perform a Roth IRA conversion of a distressed asset.
Upside of a Market Crash for Your IRA
In this episode, Adam Bergman, tax attorney and founder of IRA Financial, discusses the potential benefits of a market crash for your IRA. He introduces the topic by noting the recent downturn in global markets and its potential impact on individual retirement accounts. Bergman emphasizes the advantages of Roth IRA conversions during such downturns, explaining that assets can be moved from a pretax IRA to a Roth IRA based on their current fair market value, potentially resulting in significant tax savings over time.
Bergman explains the mechanics of a Roth IRA conversion, detailing how taxes are calculated on the converted amount based on its market value at the time of conversion. He stresses that while taxes must be paid on the conversion, the long-term benefits include tax-free withdrawals from the Roth IRA, assuming certain conditions are met. He also touches on specific strategies for maximizing these benefits, such as using net operating losses to offset taxable income from the conversion, or investing in assets with high growth potential after the conversion.
He provides several examples of stocks that are currently down, suggesting that now might be a good time for conversions for these assets. Bergman notes that while there’s a risk that these stocks could drop further, the long-term potential for growth makes the strategy worthwhile. He highlights his own investment choices, such as Apple and Tesla, and how he has used market downturns to his advantage by converting his assets to a Roth IRA during these periods.
Bergman advises listeners to consider several factors before proceeding with a Roth conversion, including their ability to pay the taxes on the converted amount, their age, and their long-term investment goals. He suggests that younger individuals may benefit more from conversions due to the longer time horizon for growth. Additionally, he mentions that those in higher tax brackets or with significant future earnings potential might find conversions particularly advantageous.
For older individuals or those with lower future income expectations, Bergman advises caution, as the immediate tax benefits may not outweigh the long-term tax savings. He emphasizes the importance of a diversified investment strategy and being bullish on the long-term prospects of the U.S. economy. Bergman believes that the U.S. market will continue to grow and that converting assets during downturns can lead to significant future gains.
In conclusion, Bergman encourages listeners to view market downturns as opportunities for Roth IRA conversions, which can lead to tax-free growth and withdrawals in the future. He shares his own success with this strategy and recommends that listeners consider their individual financial situations and goals before making conversion decisions. He invites listeners to subscribe to his podcast and YouTube channel for more insights and advice on managing their retirement accounts.
