In-Kind Roth Conversions When the Market Dips

Protecting & Preserving Wealth – In-Kind Roth Conversions When The Market Dips

Speakers: Bruce Hosler, Alex Koury, & Jon Gay

Jon Gay (00:04):

Welcome back to Protecting and Preserving Wealth, I’m Jon Gay. I’m joined by Alex Koury and Bruce Hosler of Hosler Wealth Management. Hello, gentlemen.

Bruce Hosler (00:11):

Hello, Jon.

Alex Koury (00:12):

Good morning, sir.

Jon Gay (00:13):

Alright, so today, we’re talking about in-kind Roth IRA conversions when the market dips, and we’ve seen a lot of volatility lately. Of course, this year with the Iran War, the stock market and S&P experienced a large dip in value. We’re talking 9.2%, and for many stocks, even more than that. And then it’s recovered and risen to all-time highs in 2026. Full disclosure, we’re recording this on April 29th.

Last year in 2025, the same thing took place last year with the Trump, what we’re calling a “tariff tantrum.” The market dropped in value 19%, and then again, bounced back to all-time highs. And for many investors, volatility is scary. It’s psychological. But for you guys and your clients, I know you look forward to it. Why?

Bruce Hosler (00:56):

Because we love tax-free money, Jon.

Jon Gay (00:59):

(Laughs) Good answer.

Bruce Hosler (01:01):

And this is the great opportunity to take advantage of a dip in the market. So, when we talk about an in-kind Roth conversion, we’re taking the actual investment inside of the account and we’re transferring that in kind to the Roth IRA.

So, for example, let’s just say: Nvidia stock. If you hold Nvidia stock in your IRA, it’s been growing, it’s been growing, it’s been growing, and then the market has a correction of 10%. Let’s say it comes down 10%, we can take that Nvidia stock, in kind, and move that over to your Roth IRA without selling it. So, that’s the in-kind Roth conversion. And now, when the market recovers, that growth grows back up inside of the Roth.

So, I want you to think about this. We had a 10% drop in value (so that’s 10% that dropped), it converted over, and then it recovered that 10% back in the Roth. That’s a 20% move on the amount that you convert to a Roth this year.

So, let’s imagine that we did the tax plan and you need to convert a $100,000. So, we got $10,000 down in value in Nvidia, we got a conversion, and then we recover $10,000 in value. That’s a $20,000 tax-free move that we affected for our clients because we converted the Roth on a dip and we were able to do that.

Jon Gay (02:42):

I want to make sure I’m following here, Bruce. So, again, a hundred thousand dollars drops to $90,000, 10% dip. We’re saving that 10% because when we do the conversion, we’re not paying the taxes on that 10,000.

Bruce Hosler (02:54):

Yeah, we only recognize 90 (thousand).

Jon Gay (02:56):

Yep. And then when it bounces back up to a hundred, that $10,000 is then tax-free because it’s in the Roth. So, that’s where the $20,000 comes from. It’s $10,000 twice.

Bruce Hosler (03:05):

Correct. And they have the full hundred thousand tax-free in the account, but they only converted $90,000, and it was higher before. So, by being ready with our finger on the trigger, we’re able to make the Roth conversion timely on a dip in the market.

Now, Alex, let’s just talk about this. What does history tell us about dips in the market and the S&P 500 every year? And Jon, we have a slide that we’ll provide that shows this history. Alex, go ahead and talk about that, from guide to the markets.

Alex Koury (03:41):

So, on average, every year, the market dips about 14 to 15% on average. Now, we’ve seen 9.2% this year on the S&P. So, these are the opportunities we look for at least once a year, we have that one chance potentially to make this happen. Now, it’s not guaranteed to happen every year clearly, but we want to be ready for the time if that event does happen. And it happened again and again in March, like it did in 2025.

Jon Gay (04:08):

Okay, so we’ve talked about the concept of how to do this, but what are the best IRA assets to convert to a Roth IRA during a dip?

Alex Koury (04:17):

So, what you want to look for in your portfolio are going to be your growth assets. So, your stocks, your ETFs, mutual funds that are all designed to be invested in the stock market, those are the ones that typically experience the most volatility where there’s a big drawdown and then typically, they will recover. So, those are the ones you want to look for.

You can sort through your portfolio, worst to best, and you can see what’s lost the most value. And those are the ones you really want to consider making your conversions for. Because again, if you believe long-term the market goes up, those generally will appreciate on the Roth side instead of just being down in your IRA side. That’s what we want to focus on.

Bruce Hosler (04:52):

And not all kinds of accounts can do this. Now, we’re talking about IRA accounts that are holding individual stocks or ETFs or even a mutual fund. But sometimes, if somebody has an annuity- or let’s just say they’re in a particular mutual fund per se, they may not be able to convert that mutual fund from an IRA mutual fund to a Roth, the whole mutual fund itself.

So, frequently, it favors a brokerage account that holds these inside of an IRA brokerage account. That’s probably some background that our listeners should know about.

Jon Gay (05:36):

That’s fair. Bruce, what steps do IRA owners need to take or prepare for in order to take advantage of this strategy before the market dip happens?

Bruce Hosler (05:44):

There’s a couple of things. Number one, if the client is old enough to have an RMD requirement, a required minimum distribution, if they’re 73 or older, they have to take out the RMD before they can do a Roth conversion. The first distribution of the year has to be the RMD. And if they get that backwards, there’s penalties, it’s a mess. You don’t want to do that. So you have to get your RMDs out.

So, we tell people, look, don’t wait till the end of the year to do your RMD, take your RMD out in January or February, get that out of the way. The next step that’s very important that we work with is you want to have your tax plan put together to know, okay, based on what I’m expecting for my income this year, this is how big of a Roth conversion I want to make.

Because if you don’t know how big of a Roth conversion you want to make, then you can’t time it. You have to have that number figured out in your head. And so, we do the math, so we know exactly what the tax plan is. Hey, this client wants to do $220,000, it doesn’t push him into a higher tax bracket, it doesn’t create IRMAA penalties for him – okay, that’s the amount that they want to convert.

So, now that you know that number, now you go into what’s called the “dip” list. And we’re waiting for a dip in the market. So, you’re on the dip list and you’re waiting for that dip for the opportunity. Now, Alex talked about on average it’s about 14.2 historically on the S&P 500 – it might only be 5%, or maybe it drops 10%, but we are only in trying to guess the bottom.

I mean, we are timing the market for this dip, so we’re trying to do the best we can. But even if you get a 5% dip and it moves over and 5% back up, that’s a 10% on sale that you made on your Roth conversion because you did it on a dip. Now, that’s not so big. Let’s say it’s a $100,000. So, okay, yeah, Bruce, okay, so I got $10,000 tax-free in my Roth this year.

But Jon, if you compound that for 10 years, and then you compound the growth in that Roth IRA on that $10,000 for 10 years, all of a sudden, it starts to become really big numbers, and it makes a difference for our clients on doing that.

So, you have to get your RMD out, you have to do a tax plan, you have to know how much you want to convert. You have to have your finger on the trigger ready to pull that conversion to move that particular, and you have to decide what position you’re going to move over.

So, you have to have positions, ETFs or stocks in your IRA portfolio ready to do in-kind conversions. Now, normally we like to do that with the custodians that have IRA brokerage accounts because we can do that very timely. If you have an IRA annuity, you can’t do this. It’s not very favorable. So, you have to have the right kind of account to be able to do this with.

And then also you have to worry about the taxes. So, if you’re going to have to pay some taxes, where are you paying those taxes from? Are you making estimated tax payments? Are you taking another distribution?

So, we have another strategy that we use, which we call the November list. So, maybe we’re converting right now (while the market’s down) a hundred thousand, but we’ve got to pay the taxes. We don’t want to pay the taxes right now. We want to wait and let the market recover all the way till November.

Let that IRA grow all the way to November. And then at the last second in November, we take out the taxes, and we pay them directly to the IRS. And when we do that, the IRS treats that payment like, oh, you made it in equal payments because you withheld it out of an IRA, even though we didn’t make it until November.

We got all the growth on those taxes all the way through the year, and then we pay it at the last second in November. And the IRS says, “Oh, well, you don’t have any estimated tax payments to make. You don’t have any penalties that you owe, everything is hunky dory.”

And our clients love that because you know why? They didn’t have to come up and lick a stamp or write a check or mail an estimated tax payment. So, they come in and they say, “Bruce, you’re paying my taxes for me this year” and I’m using their money, but yeah, we’ll pay their taxes for them in November. They love that.

And why are we paying it out of the taxes? Because some people will say, “Bruce, it’s a better tax strategy to pay it out of a taxable account.” Well, if you have a taxable account and you want to do that, then you have more of your IRA that can convert. But if your problem is you have $3 or $5 or $6 million in an IRA and you’re trying to get that IRA down, you may consider paying some of the taxes out of the IRA itself, and we do that on the November list.

So, that is a whole strategy during the year for doing an in-kind Roth conversion when the market dips.

Jon Gay (10:37):

The “November List” sounds a little bit less insulting than the “Dip List,” which I might’ve been on in high school.

Bruce Hosler (10:43):

(Laughs) Yes, some people have mistaken the dip list. They’re like, “Oh, well, I’m not sure I like that name, Bruce,” but the market dip list, that’s what we should call it.

Jon Gay (10:51):

We should for sure. And I want to go back to what you said about the compounding. I think it was Einstein who said compounding interest is the eighth wonder of the world. Nobody can time the market perfectly, we know this.

However, everything that you can maximize in this, every little bit, as Bruce said, you compound it over years and years. It may not seem like a lot of money right now, or maybe you didn’t time the market exactly right, but that is going to just exponentially help you over the years to come.

Bruce Hosler (11:20):

Alex, you’ve been working with me, we’re in your sixth year now, 2026, you started in 2020. You’ve seen us doing this over the years. What has your experience been for the clients that are doing this? That they’re converting their IRAs on a dip in the market? How do they like that?

Alex Koury (11:36):

They love it, because again, it’s just not doing it to do it. Everyone can just make a Roth conversion, or your advisor can recommend you do one, but when do you actually make the conversion is as important because then taxes are a very big part of it.

If we believe taxes are go higher in the future, you need to take advantage of the dips because again, you have to make up the tax liability because you’re giving that up from your IRA for your future retirement planning.

But once it goes over the line, we do strategically little dips and conversions every year. They add up to bigger numbers. So, people think, “I’ve got to do big conversions every year.” That’s not necessarily true. We want to focus on getting as much as we can done before you hit your RMD age, whether it’s 73 or 75, but even if you are in your RMD years today, that’s still okay because you probably still have 15, 20 years to go for your own planning.

And then for legacy planning as well, the Roth conversion makes a lot more sense because if you plan to give more money to your heirs or even for your spouse as a benefit, again, that’s tax-free growth you’re never going to get back because again, the rules have changed within the IRA distributions when you are inheriting an IRA as, say, a non-spouse.

So, there’s many reasons to do it. We can work on, again, long-term planning for you, again, beyond your life. That’s the point as well.

Bruce Hosler (12:53):

I want to point out a couple of things. The industry as a whole, our financial services industry, the common advice is: “We’ll wait toward the end of the year and then look at what your income’s going to be, and then decide what you’re going to do on a Roth conversion at that point.”

We are different than the rest of the market. Why is that? Because we are doing proactive tax planning. We’re projecting out; we knew what you had in capital gains and dividends and interest last year. And because we prepare taxes and we do taxes planning, we’re planning these numbers. And so, we’re giving our clients the advantage of advanced planning on what their taxes would potentially be.

And so, the rest of the industry waits till the end of the year and they’re reactive. I want you to think about what happens. What are the three most productive months of the year? Usually October, November, December. So, what are they doing? They’re converting when the market’s going higher, they can normally never get a dip in those last three months of the year to do a Roth conversion.

So, this opportunity of what we’re talking about, converting on a dip in the stock market, is pretty much unique to our firm, and we’re leading thought provokers of that in the country of taking advantage of these opportunities to do your Roth conversion when the market’s on sale.

Jon Gay (14:10):

I will say there are some strategies we’ve talked about today that I have not heard before, and I’ve learned a lot in the last 15 minutes or so. If one of our listeners or viewers (since we’re also online with video) wants to contact you or the team at Hosler Wealth Management, how do they best find you?

Bruce Hosler (14:24):

Well, of course the website, hoslerwm.com. We have a little button there, you can click and request to set up an appointment. Alex, if they want to call you in Scottsdale, how do they get to you?

Alex Koury (14:35):

(480)-994-7342.

Bruce Hosler (14:38):

And folks, if you want to call our Prescott office, (928)-778-7666.

Jon Gay (14:44):

I would say valuable information today, but that’d be kind of a pun because we’re talking about potentially saving a lot of money. So, we’ll say good information today, gentlemen. We’ll talk again soon.

Bruce Hosler (14:53):

Thank you, Jon.

Bruce Hosler (14:54):

Thanks, Jon.

Disclosure: (19:08):

Investment advisory services are offered through Mutual Advisors LLC, DBA Hosler Wealth Management, a SEC registered investment advisor. Securities are offered through Mutual Securities, Inc., a member FINRA/SIPC. Mutual Advisors, LLC and Mutual Securities, Inc. (collectively Mutual Group) are affiliated companies.

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