At 62, He Is Considering a $100,000 Roth Conversion From a $1.05 Million 401(k). A 10% Market Slide Could Lower His Federal Tax by $2,200

A market decline can feel like bad news, but for Roth conversions it can also create a brief tax break. The IRS values the shares on the day they are moved, so a drop in price can reduce the taxable amount before the window closes.

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A 62-year-old investor with a $1.05 million traditional 401(k) had planned a $100,000 Roth conversion. Then the market weakened, and the portion he intended to move fell to $90,000.

That may be disappointing on paper, but it also gives him a better tax outcome if he acts quickly. The 10% decline trims his federal tax on the conversion by $2,200 while still allowing him to transfer the same shares.

Why the Tax Bill Drops When the Shares Fall

When pretax 401(k) money is moved into a Roth IRA, the rollover usually creates taxable income in that year. The IRS uses the value of the shares at the time of distribution, not the earlier price.

If he converts at $90,000 instead of the higher figure, he reports $10,000 less ordinary income. He ends up with the same number of shares and the same future upside, but the tax is calculated on a smaller amount.

How the $2,200 Savings Adds Up

Assume he files jointly and already has $60,000 in other taxable income. Under the 2026 tax brackets, the 22% joint bracket applies to taxable income above $100,800.

The 24% rate does not begin until taxable income exceeds $211,400.

A conversion at the original value would put his taxable income at $160,000. Converting after the decline would bring it to $150,000.

The $10,000 difference between those two amounts falls entirely within the 22% bracket, which is why the tax savings come to $2,200.

He is also at an age when the Medicare clock matters. The income-related monthly adjustment amount, or IRMAA, generally looks at income from two years earlier. A 2026 conversion would not affect his first Medicare premiums when he turns 65 in 2029, but conversions starting in 2027 could matter.

If he has not yet claimed Social Security, the conversion would not make any of his benefits taxable either.

What If the Market Rebounds?

If the shares rise back to $100,000 after entering the Roth IRA, that extra $10,000 of growth is never taxed, as long as he later takes a qualified distribution. Since he is already past age 59½, the remaining hurdle is the five-tax-year rule that starts with his first Roth IRA contribution or conversion.

Roth IRAs also do not require minimum distributions while the owner is alive. Moving money into a Roth account also reduces the balance left in the traditional 401(k), which can lower future required minimum distributions and potentially reduce taxable retirement income and Medicare premiums later in life.

Those years before RMDs begin are often one of the most favorable tax windows retirees will ever have again.

Four Choices to Get Right After a Selloff

1. Use a direct rollover to a Roth IRA. A trustee-to-trustee transfer avoids mandatory withholding. If the money is paid directly to him instead, 20% is typically withheld. He should also check whether his plan permits in-service withdrawals while he is still employed.
2. Consider an in-plan Roth conversion. If his 401(k) allows it, he can shift pretax savings into a Roth account inside the same plan without opening an IRA. Income tax is still due on the conversion, and tax-free withdrawals of earnings must satisfy the plan’s separate five-year rule.
3. Pay the tax from outside savings. If he covers the tax bill with money from a taxable brokerage account, the full $90,000 stays in the Roth and can keep growing tax-free. Withholding tax from the conversion itself shrinks the Roth balance and gives up part of the rebound.
4. Accept the investment risk. A conversion cannot be undone. If the shares drop another 10% after the move, he will have paid tax on value that no longer exists. Converting the shares in kind keeps the same holdings in the Roth so they can recover there.

Act Before the Discount Disappears

The opportunity lasts only while prices remain depressed. Once the shares recover, the tax advantage shrinks too. A few moves can help:

1. Convert in kind at the current price. Ask the plan administrator to transfer the shares themselves rather than selling them for cash first.
2. Use the 22% bracket. With $60,000 of other taxable income, he has roughly $151,400 of room before the 24% bracket begins. A market decline could let him move more shares while staying in that range.
3. Start watching IRMAA at 63. Conversions made in 2027 could influence his first Medicare premiums in 2029, so compare income with the premium thresholds for that year rather than the 2026 joint-filer cutoff.