At 62, He Plans a $100,000 Roth Conversion From His $1.05 Million 401(k). A 10% Market Drop Will Cut His Federal Tax by $2,200

A 62-year-old with a $1.05 million traditional 401(k) had a $100,000 Roth conversion lined up. Then the market slid. Just before he was set to move it, the position he planned to convert fell to $90,000.

His first reaction was frustration. A better one is to get the paperwork moving. That 10% drop lowers his federal tax on the conversion by $2,200, and he still moves exactly the same shares.

Why the Same Shares Now Carry a Smaller Tax Bill

Moving pretax 401(k) money into a Roth IRA generally creates taxable income in the year of the rollover. The IRS uses the value of the shares when they’re distributed, so last month’s price plays no role.

If he converts at $90,000, he reports $10,000 less ordinary income than he would have at the old price. He keeps the same share count and the same upside, and the tax is figured on a smaller number.

Where the $2,200 Savings Comes From

Say he files jointly and has $60,000 of other taxable income. For 2026, the 22% joint bracket covers taxable income over $100,800.

The 24% rate starts over $211,400.

A full-price conversion would bring his taxable income to $160,000. Converting after the drop brings it to $150,000.

The $10,000 between those two figures is all taxed at 22%, so he saves $2,200.

At 62, he also has a window before Medicare begins. Its income-related monthly adjustment amount (IRMAA) generally uses income from two years earlier. A 2026 conversion won’t affect his first Medicare premiums when he turns 65 in 2029, but conversions beginning in 2027 could.

If he hasn’t claimed Social Security yet, the conversion also won’t make any of his benefits taxable.

What Happens When the Market Recovers

Say the shares climb back to $100,000 after they land in the Roth IRA. That $10,000 gain is never taxed, provided he takes it out as a qualified distribution. He’s already past age 59½, so the remaining requirement is the five-tax-year period beginning with his first Roth IRA contribution or conversion.

Roth IRAs also have no required minimum distributions while the owner is alive. Moving that money into a Roth IRA also shrinks the traditional 401(k) balance used to calculate future RMDs, potentially lowering his taxable retirement income and Medicare premiums in his 70s.

Those pre-RMD years in his 60s are often the cheapest tax window a retiree ever sees again (we sized up that window, and how to use it, in a free Roth guide here: The Roth Window).

Converting After a Selloff: Four Decisions to Get Right

1. Direct rollover to a Roth IRA. A trustee-to-trustee transfer has no mandatory withholding. A check paid to him would have 20% withheld. Find out whether his plan allows in-service withdrawals while he is still working.
2. In-plan Roth conversion. If his 401(k) allows it, he can move pretax savings into a Roth account within the same plan, without opening an IRA. He’ll owe income tax on the conversion, and tax-free withdrawals of earnings are subject to the plan’s separate five-year rule.
3. Tax paid from other savings. If he pays the bill from a taxable brokerage account, all $90,000 stays in the Roth and grows tax-free. Having tax withheld from the conversion reduces the Roth and gives up part of the recovery.
4. Continued investment risk. A conversion can’t be reversed. If the shares fall another 10% after the transfer, he has paid tax on value he no longer has. Convert the shares in kind so the same holdings recover inside the Roth.

Move Before the Rebound Erases the Discount

The advantage lasts only while prices are down. Once the shares bounce back, so does the $2,200 in tax. Three steps to take now:

1. Convert in kind at today’s price. Ask the plan administrator to move the low shares themselves instead of selling them for cash first.
2. Fill the 22% bracket. With $60,000 of other taxable income, he has about $151,400 of room before the 24% rate starts. A market selloff could give him an opportunity to convert more shares while staying in that bracket.
3. Start tracking IRMAA at 63. Conversions made in 2027 could affect his first Medicare premiums in 2029. Compare his income with the thresholds for that premium year, not the 2026 $218,000 joint-filer cutoff.

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