Market Risk Consideration
Protecting the Conversion Window
A Roth conversion creates a known tax bill before the converted dollars experience their future investment results. This stress test shows how a decline immediately after conversion can change the effective cost of that decision.
Historical Context
What if the conversion happened near a market peak?
Current stress test:
-40%
Selected S&P 500 total-return drawdowns are shown for historical context. The purpose is not to predict the next decline, but to test how much market risk is concentrated immediately after conversion. Past performance does not guarantee future results.
Illustrative Timing Risk
Tax paid before the decline
Conversion taxes are paid from outside assets, so the full conversion enters the Roth.
Conversion tax rate
30%
Tax paid at conversion
$150,000
Amount entering Roth
$500,000
Market decline after conversion
-40%
Roth value after decline
$300,000
Tax paid / remaining Roth
50%
The tax was based on $500,000.
The account now holds $300,000, but the earlier $150,000 tax bill is not recalculated or refunded.