Why Cardiologists Are Pulling Money Out of Their 401(k)s During Market Downturns While Most Investors Hold On

A cardiologist who retires at 60 with $2 million in a traditional 401(k) and delays Social Security until 67 has something most investors do not: a multi-year window of artificially low taxable income. When the market drops 20%, the instinct is to hold on and wait for recovery. The strategic move is to convert.

The Window That Most Investors Miss

Between retirement and Social Security, a high earner who spent decades in the 37% bracket can suddenly find themselves in the 22% or 24% bracket. Per IRS Revenue Procedure 2025-32, the 2026 federal income tax brackets place single filers in the 22% bracket from $50,401 to $105,700, and in the 24% bracket from $105,701 to $201,775. The One Big Beautiful Bill Act made these rates permanent, removing what had been a scheduled 2026 sunset, so the planning window no longer has an expiration date attached to tax law uncertainty. For someone with no W-2 income, a $150,000 Roth conversion lands squarely in that range.

That is the window. The question is when to use it, and the answer is during a market downturn. The S&P 500 fell sharply in April 2025 after President Trump’s “Liberation Day” tariff announcement on April 2. The VIX, Wall Street’s primary fear gauge, closed at 52.33 on April 8, the highest closing level outside the 2008-2009 financial crisis and the COVID-19 pandemic, with intraday levels reaching above 60 on April 7. The index remained elevated above 30 from April 10 through April 23, a sustained period of market stress. Most investors froze. Physicians who understood the mechanics converted.

Why the Timing of Conversion Changes the Math Permanently

A physician holds a broad index fund inside her traditional 401(k). Shares are trading at $50. She converts $150,000, which represents 3,000 shares. The tax bill is the same regardless of market conditions: $150,000 of ordinary income at her marginal rate.

Now consider the same decision during a 20% market downturn, when shares drop to $40. The same $150,000 conversion buys 3,750 shares. The tax cost is identical. But when the market recovers and shares reach $100 a decade later, the downturn converter holds 3,750 shares worth $375,000 inside the Roth, versus 3,000 shares worth $300,000 for the bull-market converter. The difference is $75,000, and every dollar of it is permanently tax-free.

The mechanism works in two directions simultaneously. The converted dollar amount is lower in real terms because assets are depressed, and the recovery gains accrue inside the Roth rather than in the traditional account, where they would eventually be subject to ordinary income tax upon withdrawal. The April 2025 episode is a case study in how quickly those recovery gains can materialize. By month-end, the S&P 500 had clawed back most of its losses after the 90-day tariff pause announced April 9 triggered one of the largest single-session rallies since the early days of the COVID-19 pandemic in 2020.

The IRMAA Trap That Erases the Gain

The conversion window is real, but it has a ceiling. Medicare premium surcharges under IRMAA use a two-year lookback, so income decisions made in 2026 affect premiums in 2028. For 2026, IRMAA surcharges begin at a MAGI of $109,000 for single filers. The first tier adds approximately $1,148 per year per person in combined Part B and Part D surcharges above the standard $202.90 monthly Part B premium. The second tier, triggered at or above $137,000, costs roughly $2,886 per person annually. IRMAA operates as a cliff: one dollar above any threshold triggers the full surcharge for that tier, not a proportional increase.

A $150,000 Roth conversion on top of even modest other income can easily push past multiple IRMAA tiers. A single filer with $30,000 in dividend income who converts $150,000 ends up with $180,000 MAGI and lands in the third tier, triggering an annual surcharge of approximately $4,620 per person. That cost appears two years later on the Medicare premium notice, and most retirees never connect it back to the conversion decision they made.

The smart planning target for a single retiree is to keep total MAGI below $109,000 to avoid IRMAA entirely, or to convert up to just under $137,000 and accept only the first-tier surcharge while still capturing the Roth benefit. For a married couple filing jointly, the threshold is $218,000 before any surcharge applies, which provides considerably more room for conversions.

Sizing and Timing a Roth Conversion Around IRMAA

1. Calculating MAGI for the current year before any conversion, including dividends, interest, capital gains distributions, and any part-time income, establishes the baseline. The gap between that number and $109,000 (single) or $218,000 (joint) is the IRMAA-safe conversion ceiling for 2026, with the surcharge landing in 2028.
2. When the market drops more than 15%, the share-count advantage becomes material. Dividing the target conversion amount by the current depressed share price of the fund being held, then comparing it to the same division at the pre-correction price, reveals the difference in shares. Multiplying that difference by a reasonable long-term recovery price shows the incremental tax-free gain from converting during the downturn rather than after recovery.
3. If MAGI after a full conversion exceeds $137,000 for a single filer, splitting the conversion across two calendar years can keep income within a single IRMAA tier. The jump from Tier 1 ($1,148 annually) to Tier 2 ($2,886 annually) is triggered by exceeding $137,000 in MAGI, and avoiding that threshold for two years saves more than $3,400 in Medicare premiums per person.

The VIX climbed above 30 in late March 2026 before falling more than 33% by month-end in April, when the S&P 500 gained 10.4% in one of its strongest calendar-month performances in years, finishing near 16.9. Those windows open and close quickly. Investors who act during them are applying discipline, not abandoning it.

Editor’s note: This pass updated the S&P 500 April 2026 gain from “roughly 10.5%” to 10.4% and the end-of-April 2026 VIX level from “toward 19” to near 16.9, both per Cboe’s official April 2026 Index Insights report. It also added context on the One Big Beautiful Bill Act making the current tax rate structure permanent.

Contact [email protected] for any questions or corrections.