URGENT: Don’t Convert to a Roth in 2025 Without Seeing This

Answer Box: TL;DR

When you convert to a Roth matters almost as much as how much you convert. In this video, Dan explains that most people focus only on the tax bracket question (how much to convert), but ignore the timing question—which can create up to 30% more value over time. He compares five Roth conversion timing strategies (year-end, start-of-year, split, monthly, and a “drawdown” method that uses market dips) using data back to 1927. The clear loser: the popular year-end approach. The consistent winner: a drawdown guardrail strategy that converts half early and the rest on a significant market drop (or at year-end if no drop occurs).

Key Takeaways

Roth conversion timing is a big deal, not a footnote.
- Most people only ask, “How much should I convert?”
- Dan shows that when you convert can add up to ~30% more growth over time, even if the total converted amount is the same.
- Small changes in timing compound over multiple years.
Why year-end conversions are popular—but flawed.
- Year-end conversions let you see your full-year income, capital gains, and dividends before deciding how much to convert.
- That makes it easier to manage brackets and issues like IRMAA (Medicare surcharge).
- But it means your money spends almost the entire year growing in the tax-deferred account instead of in the tax-free Roth.
- Since markets are up about 8 out of 10 years historically, that growth occurs in the wrong bucket.
- Result: year-end conversions historically delivered the worst performance of all strategies Dan tested.
Start-of-year conversions: more growth, less tax clarity.
- Converting on or near January 1st gives the Roth a full year of potential tax-free growth.
- Downside: you don’t know final income yet—bonuses, RSUs, or capital gains later in the year could push you into a higher bracket.
- Workaround: convert 90–95% of your target early and leave a small cushion to avoid bracket surprises.
- Over multiple years, getting money into the Roth earlier can build meaningfully more wealth than waiting until year-end.
The split method: simple hedge that works well.
- Convert half at the beginning of the year and half at the end.
- Benefits:
  - Some money gets early Roth growth.
  - You still have year-end tax clarity for the second half.
- This is Tailored Wealth’s default recommendation for many retirees because it’s easy and effective.
Equal monthly conversions: like dollar-cost-averaging into your Roth.
- Take your annual Roth conversion target and divide it by 12 (e.g., $100,000 ÷ 12 ≈ $8,333/month).
- This spreads conversions across the entire year, smoothing out market ups and downs.
- Performance in testing was similar to the start-of-year and split methods, and all of them beat year-end conversions.
The “drawdown method”: Dan’s preferred strategy.
- Step 1: Convert 50% of your annual target in January.
- Step 2: Set a drawdown trigger—for example, a 20% market drop.
- Step 3:
  - If the market drops by that amount, convert the remaining 50% during the dip.
  - If no drawdown occurs, convert the remaining 50% at year-end (effectively becoming a split method).
- This lets you:
  - Get some early Roth growth, and
  - “Buy the dip” in your Roth if markets sell off.
- In Tailored Wealth’s models, this method outperformed all others over both 5- and 8-year rolling periods.
Real-world example (2020 COVID crash).
- A client converted $50K in January, then converted another $50K after a ~35% market drop in March.
- The combined Roth balance fell to ~$75K at the bottom—painful in the moment—but finished the year over $130K.
- This crushed the year-end-only conversion, even though the total converted amount was the same.
What the historical data shows (back to 1927).
- Dan tested all five methods using:
  - Data from 1927 onward
  - Rolling 5- and 8-year windows
  - Growth only (excluding the original conversion amount)
- Year-end conversions came in last—by a wide margin—trailing the top strategy by ~18%.
- The drawdown method was the top performer over both 5- and 8-year windows.
- Start-of-year, split, and monthly methods all performed similarly and all beat year-end conversions.
Actionable takeaway if you’re a DIY investor.
- If the drawdown method feels too complex to track, choose one of the “middle three”:
  - Start-of-year
  - Split
  - Equal monthly
- All three are historically better than year-end conversion and easier than a dynamic drawdown approach.
- But whatever you do, don’t just default to year-end because it’s common.
Core principle: strategy matters, but timing matters even more.
- Roth conversions are powerful tax tools, but how and when you implement them shapes long-term results.
- Stop cherry-picking one-off scenarios; rely on a repeatable approach that works across many market environments.

Key Moments

(00:00) – Why Roth conversion timing is critical. Dan introduces the idea that small timing decisions in Roth planning can have huge long-term impacts and that one method consistently outperforms the others.
(00:24) – The common mistake: focusing only on taxes. He explains how most people look only at the tax burden (how much to convert), but ignore the timing question—which can add ~30% more value.
(01:17) – Strategy #1: Year-end conversion. Dan describes the advantages (full-year tax visibility, easier IRMAA management) but shows why this method usually underperforms due to lost tax-free compounding in the Roth.
(02:01) – Strategy #2: Start-of-year conversion. He outlines the benefits of converting on January 1st to capture a full year of Roth growth, and the risk of not knowing your final income yet.
(02:22–02:44) – A practical tweak: convert 90–95% early. Dan suggests leaving a small cushion to account for unexpected income like bonuses or stock grants.
(02:44–03:07) – 4-year example: compounding advantage. He walks through a four-year scenario showing that even if year one favors year-end conversions, the start-of-year approach pulls ahead by about $30K by year four.
(03:07–03:37) – Strategy #3: Split method (half early, half late). Dan introduces the hybrid approach Tailored Wealth often recommends as a default because it balances growth and tax clarity.
(03:37–03:59) – Strategy #4: Equal monthly conversions. He explains converting monthly as a kind of “dollar-cost averaging” into the Roth, smoothing market volatility.
(03:59–04:25) – Strategy #5: The drawdown method. Dan details their preferred approach: convert 50% in January, then convert the rest if markets drop by a set amount, or at year-end if they don’t.
(04:25–04:50) – 2020 COVID crash case study. He shares a real client example where using the drawdown trigger during a 35% drop led to a Roth balance of over $130K by year’s end from two $50K conversions.
(05:17–05:44) – Historical backtest: 1927 onward. Dan explains the backtesting setup and reveals that year-end conversions performed the worst, while the drawdown strategy was consistently best.
(05:44–06:16) – Ranking the five strategies. He notes that start-of-year, split, and monthly methods all performed similarly and better than year-end, while the drawdown strategy topped them all.
(06:16–06:39) – Don’t cherry-pick; focus on consistency. Dan cautions against focusing on one-off scenarios and emphasizes the overarching lesson: year-end methods underperform history, timing matters.
(06:39–end) – Call to rethink your Roth plan. He encourages viewers to reconsider defaulting to year-end conversions and to ask questions in the comments, with more content coming on planning topics.

Episode Summary

In this video, Dan reframes Roth conversions from a one-time tax move into an ongoing timing strategy that can materially change retirement outcomes. Most people look at Roth conversions only through the lens of current vs. future tax brackets and how much to convert each year. Dan argues that this is just half the equation. The other half—when you convert—can drive as much as 30% more value over time due to the compounding of tax-free growth inside the Roth.

He begins by examining the most common approach: year-end conversions. On the surface, this method seems logical because it gives you full visibility into your annual income, capital gains, and dividends before deciding how much to convert, making bracket management and IRMAA planning easier. But there’s a hidden cost: in most years, the market rises, so the growth is happening in the tax-deferred account instead of the Roth. When you finally convert in December, you move a larger balance—but you also shifted a year’s worth of potential tax-free compounding into the wrong bucket. In historical testing, this method ended up being the worst performer by a wide margin.

Next, Dan explores a start-of-year conversion strategy. Converting in January maximizes the Roth’s time in the market, capturing a full year of tax-free growth. The tradeoff is that you don’t yet know your final income, so late-year bonuses or capital gains could push you into a higher bracket. To manage that risk, he suggests converting roughly 90–95% of your target early and leaving a buffer. Over multiple years, this approach has a compounding edge: even if in year one the year-end method looks better (especially in a down year), by year four the start-of-year strategy can end up tens of thousands ahead because each year’s early conversions enjoy more time growing tax-free.

He then introduces the split method, Tailored Wealth’s default for many retirees: convert half at the beginning of the year and half at the end. This creates a built-in hedge—some dollars benefit from early Roth exposure, while the rest are positioned for year-end tax clarity. Equal monthly conversions work similarly, spreading conversions evenly through the year like dollar-cost averaging, which smooths volatility. In his backtesting, start-of-year, split, and monthly approaches performed similarly and all outperformed year-end conversions.

The standout, however, is the drawdown method, which Dan and his team favor. Under this strategy, you convert 50% of your planned annual amount in January. Then you set a drawdown trigger, such as a 20% market decline. If markets fall that much, you convert the remaining 50% during the dip, effectively “buying the discount” inside your Roth. If no such drop occurs during the year, you simply convert the remaining 50% at year-end, making it behave much like the split method. A 2020 COVID crash example illustrates how powerful this can be: a client who converted $50K early and another $50K after the 35% drop ended the year with over $130K in the Roth, far surpassing what a single year-end conversion would have produced.

To move beyond anecdotes, Dan shares results from a historical backtest using data back to 1927, testing each strategy over rolling 5- and 8-year windows and looking only at growth (excluding the original contributions). The verdict: year-end conversions came in last, trailing the top-performing method by roughly 18%. The drawdown strategy outperformed all others in both time frames. Start-of-year, split, and monthly methods all clustered together above year-end and are easier to implement than drawdown for many DIY investors.

He closes with a simple but important message: “Strategy matters, but timing matters even more.” If you’re still defaulting to year-end Roth conversions just because that’s what you’ve always done—or because it feels safest from a tax standpoint—it may be time to rethink your approach. Choosing a smarter timing strategy, even without changing how much you convert, can significantly enhance the long-term value of your Roth and your overall retirement plan.

Full Transcript

Dan: Timing your Roth conversion can make or break your retirement strategy. We tested five different methods using data going back to 1927. And one strategy consistently outperformed the rest. In this video, I’m going to share with you why most people get the timing wrong and what actually works even in volatile markets.

Dan: Let’s start with why timing matters so much when it comes to Roth conversions. You see, small details in Roth IRA conversion planning can have a massive impact on your retirement outcome. Most people only focus on the tax problem. They see a high tax deferred balance and they realize that they’re going to face a high tax burden later.

Dan: So naturally, the next step is to explore how much to convert, a large lump sum or small pieces over time. But that’s where most people stop. And what they miss is that timing, not just the amount, can drive up to 30% more in value over time. So in this video, we’re going to look at five different conversion timing strategies. Let’s start with the most common one, year-end conversions.

Dan: This is where someone who, for example, wants to convert $100,000 in 2025 would wait until December to do the conversion. The upside to this is that you have the full year’s tax. You know what your total income is, your capital gains, and your dividends. And this helps you to navigate tricky tax items like Irma.

Dan: But here’s the problem. Your Roth account misses nearly all of the gains that happen throughout the year. And historically, markets are up eight out of every 10 years. So while your assets are sitting in a tax deferred account, that compounded growth is happening in the wrong place. Long-term, this strategy actually reduces your growth.

Dan: It’s popular, but historically, the data shows that it’s actually the worst performing method. So now, let’s look at the opposite, the start of the year conversion. This is where you convert on January 1st to get the full year of tax-free growth.

Dan: Of course, the downside is you won’t know what your total income is going to be for the year. So, if something unexpected happens throughout the year, a bonus, a stock grant, higher than expected capital gains, you may convert too much. One way to prevent this is to convert 90 to 95% of your goal early. So, if you plan to convert around 100,000, do 90 to 95,000 early and leave a little cushion.

Dan: Some people think this only matters in year one, but let’s look at a four-year example. Let’s say you convert a 100,000 each year and the market goes down in year one. Sure, in that first year, the end of the year method looks better, but because the start of the year approach puts money in the Roth account earlier each year, the compounding builds faster.

Dan: By the end of year four, the start of year method actually ends with about 30,000 more than the end-of-year method. Now, let’s talk about a third strategy, the split method. It’s simple. Convert half at the beginning of the year, half at the end of the year. It’s a hybrid and helps you to hedge the timing risk. This is our default recommendation for most retirees because it gives you both early exposure to market growth and end-of-the-year tax planning clarity.

Dan: Next up is strategy number four. Equal monthly conversions. You take your annual target and divide it by 12. So let’s say 100,000 as your annual target. That’s 8,333 per month. It’s like dollar cost averaging but for Roth conversions. This strategy helps smooth out the ups and downs throughout the year.

Dan: And finally, strategy number five, the drawdown method. This is the one that we typically prefer at Tailored Wealth. Here’s how it works. You start with a 50% conversion in January. Then you set a draw down trigger. Let’s say 20%. So if there’s a 20% drop in the market, then you convert the other 50%. And if no drop happens, then you convert the second 50% at year end.

Dan: So essentially, it becomes a split method by default. The advantage here is that you’re diversified across early and late timing. And if there’s a dip in the market, you take advantage by buying into the Roth account at a discount. Here’s an example from 2020. We had a client convert 50,000 in January and then COVID hits and the market drops 35%.

Dan: That triggered the second 50,000 conversion in March. The portfolio dropped to around 75,000 which didn’t feel great at that time, but by year end it had grown to over 130,000. And that move crushed the year-end conversion method. And even if the recovery had taken longer, let’s say two to three years, it still would have outperformed. The key is taking advantage when the market gives you that rare opportunity.

Dan: Let’s wrap this up with some historical data. We ran the numbers using data going back to 1927, and we used two rolling windows, five and eight years. And we excluded the original conversion amounts to only focus on growth. What were the results? End-of-year conversions came in last by a lot. Even though they’re the most popular, they trailed the leading performing method by 18%.

Dan: The draw down strategy outperformed all other methods in both time windows. The start of the year, split, and monthly methods all performed very similarly. All three of those performed better than the end-of-year method and were easier to implement than the draw down strategy. So if you’re a DIY investor and you’re not utilizing the more complex drawdown method, one of those three middle strategies is a strong choice, but don’t just default to the year-end method.

Dan: Okay, so here are some final thoughts. Don’t fall into the trap of cherry-picking scenarios. Yes, the draw down method does win in the eight-year back test, and it still wins in the five-year back test, but the margins are smaller. But the consistent method is this. The year-end strategy underperforms both time frames and history.

Dan: And the data is clear. Strategy matters, but timing matters even more. So, if you’re still defaulting to year-end Roth conversions, it might be time to rethink that plan. If you have questions about applying this to your own plan, drop them in the comments below and subscribe to our channel to get more videos like the one you just watched.

Resources & Concepts Mentioned

Roth IRA conversion: Moving money from pre-tax retirement accounts (like traditional IRAs/401(k)s) into a Roth account and paying tax now for future tax-free growth.
Year-end conversion strategy: Converting in December after full-year income is known.
Start-of-year / split / monthly strategies: Approaches that get money into the Roth earlier and/or spread timing risk.
Drawdown method: Converting part early and part during a predefined market drop, or at year-end if no drop occurs.
IRMAA: Income-Related Monthly Adjustment Amount—Medicare surcharges based on income.
Backtesting: Testing strategies against historical market data to see how they would have performed.

FAQs

Is the year-end Roth conversion strategy always a bad idea?

Not always, but Dan’s analysis suggests it’s often suboptimal for long-term growth compared to other methods. There can be situations where year-end makes sense (e.g., very tight IRMAA or bracket management), but you shouldn’t default to it without comparing alternatives.

What if I can’t monitor the market closely enough to use the drawdown method?

Then one of the “middle three” strategies—start-of-year, split, or monthly conversions—is likely a better fit. They performed similarly in historical testing, and all beat year-end conversions while being simpler to run.

How do I choose my drawdown trigger (like 20%)?

There’s no magic number, but it should be meaningful enough that you’re truly “buying a dip” but not so extreme that it almost never triggers. Many investors look at 15–25% ranges, depending on risk tolerance, time horizon, and portfolio makeup.

Will the best timing strategy always beat bad markets?

No timing strategy eliminates risk. Poor markets can still hurt, but better timing can improve your odds and outcomes over time by directing more growth into tax-free Roth accounts, especially around big drawdowns and recoveries.

Should I make Roth conversion decisions without a tax professional?

It’s possible, but Roth conversions affect taxes, Medicare premiums, and future retirement income. Many people benefit from working with a financial planner and/or CPA to coordinate conversion amounts, timing, and tax impacts.

Disclaimer

This video and written summary are for educational and informational purposes only and do not constitute financial, tax, or legal advice. They do not create a client relationship with Tailored Wealth or any related entity.

Roth conversions involve tax liabilities, long-term planning implications, and potential impacts on Medicare premiums and other benefits. Before making any decisions, you should consult with:

A licensed financial advisor or planner
A qualified tax professional (CPA or EA)
Legal counsel, where appropriate

Any historical performance discussed is illustrative and not a guarantee of future results. Tax laws and rules may change.

Next Steps

If you’re considering Roth conversions in 2025 or beyond, you might:

List your goals: Are you trying to reduce future RMDs, manage tax brackets, or build tax-free legacy?
Pick a timing framework: Start-of-year, split, monthly, or drawdown—rather than defaulting to year-end.
Model the impact: Run scenarios on different methods over several years to see effects on balances and taxes.
Coordinate with tax planning: Align conversions with your brackets, IRMAA thresholds, and other income events.
Review annually: Markets, income, and laws change—your Roth strategy should evolve along with them.

A thoughtful timing plan can turn Roth conversions from a one-off tax move into a powerful, compounding advantage for your retirement.