Changing traditional IRA assets to Roth IRAs during a bear market can provide significant tax savings and tax-free growth over time—and strategic planning with an advisor can help navigate that opportunity, says Michael Corgiat, of The Retirement Group, a division of The Retirement Group.

'Sysco employees can take advantage of current market conditions and convert traditional IRA assets to Roth IRAs and enjoy tax-free growth now and in the future,' says Brent Wolf, a representative of The Retirement Group, a division of The Retirement Group.

In this article we will discuss:

• 1. The upside to converting traditional IRA assets to Roth IRAs during a bear market.

• 2. How tax trade-offs and tax bracket management affect IRA conversions.

• 3. Benefits of Roth IRA rules - no RMDs for original account holder.

The current bear market may offer an opportunity to convert traditional IRA assets to Roth IRAs. Converted assets are taxed as ordinary income in the year of conversion—a big tax bill in that year. But if your traditional IRA assets have appreciated in value, you will be taxed on a lower asset base when you convert. All conditions are met, and no additional income tax liability for you or your beneficiaries from the Roth account will result from the account growth.

According to a new report from Employee Benefit Research Institute (EBRI), most retirees spend less in retirement than they did working years. And only 7% of retirees said they spent more in retirement than before retirement. That means retirees might not need so much retirement income after all, and converting traditional IRA assets to Roth IRAs might be a smart way to reduce taxes and increase retirement savings:

Tax Trade-Off

One reason to delay taxes on Sysco retirement savings is that you may be in a lower tax bracket in retirement and a current tax deduction may be better than tax-free income in retirement. The One Big Beautiful Bill Act (OBBBA) permanently locked in lower rates, which might change your calculation. A cost-benefit analysis might reveal whether it makes sense to pay taxes on some of your IRA assets now rather than later. One strategy is to 'fill your tax bracket,' or convert an asset's value to keep your tax classification. This requires an estimate of your current income.

Lower Values, More Shares

If you have traditional or Roth IRAs at the same custodian, you can typically transfer funds between the accounts. So when share prices are low, you can convert more shares for each taxable dollar and have more shares in your Roth account for tax-free growth. The converted assets could also lose value. You could also directly deduct taxes on the converted assets—which is generally unwise.

Two Time Tests

There are two five-year retention periods for Roth accounts: one for withdrawals of earnings and the other for conversions. Tax-free and penalty-free withdrawals of earnings, including earnings on converted amounts, must be within five years of the first Roth account opening date and must be made after age 59½ unless an IRS exception applies. This need not be a problem if you already have a Roth IRA, but could be if you open your first Roth IRA for the conversion.

Since you paid taxes at the time of conversion, assets converted to a Roth IRA can be withdrawn at any time without conventional income tax. However, you may be penalized by 10% if you withdraw the assets before the end of a different five-year period beginning on January 1 of each conversion year unless you are at least 59½ years old or under another exception.

More Favorable RMD Rules

Roth IRAs are not subject to required minimum distribution (RMD) rules while the original owner is alive—unlike traditional IRAs. Those whose spouse's Roth IRA is considered their own are also sheltered from RMDs during their lifetimes. Other inheritors of a Roth IRA must complete RMD requirements. In any event, distributions from a Roth IRA would be tax-free. The longer your investments can grow, the better tax-free income may be for you and your beneficiaries.

No investment strategy can guarantee success for Sysco employees—all investing involves risk—including losing principal.

It's like planting seeds in a garden during a drought to convert traditional IRA assets to Roth IRAs in a bear market. As odd as it is to plant when supplies are tight, planting during a drought can produce a more plentiful harvest when the rains return. Likely, converting traditional IRA assets to Roth IRAs during a bear market will net you a lower tax bill and more tax-free growth in the long haul despite the initial tax hit. Like gardening, planning ahead and having patience will help.

That same shift from growing assets to drawing them down applies directly to the pension decisions in front of you at Sysco. Sysco maintains an active defined benefit pension plan, meaning eligible employees continue to accrue benefits based on years of service and compensation. If you are eligible for a lump sum payout, IRS Section 417(e) segment rates determine how the future annuity stream converts to a present-value payment - rising rates compress the lump sum, so monitoring the plan's stability period and lookback month is critical before you lock in your election date. The choice between a single-life annuity, a joint-and-survivor option, or a lump sum (where available) is generally irrevocable once made, and timing that decision relative to interest rate conditions can meaningfully affect your retirement income picture.

On the healthcare side, Sysco provides continued medical coverage to eligible retirees, which can bridge the gap between retirement and Medicare eligibility at age 65 or serve as a supplement to Medicare thereafter. Confirming the service and age requirements for retiree coverage, and understanding your premium contribution, is an important step in building an accurate healthcare cost projection. Coordinating Sysco's retiree coverage with Medicare Part B and Part D enrollment timing can also reduce duplication and avoid late-enrollment penalties. Connecting your specific Sysco benefits situation to a comprehensive retirement income plan - and understanding how each component interacts - gives you the most complete picture of what retirement will look like.

Sources:

1. '2024 Spending in Retirement Survey.'  Employee Benefit Research Institute ,  www.ebri.org/content/2024-spending-in-retirement-survey?utm_source=chatgpt.com

2. 'Leveraging Tax Advantages of Roth Conversion in Bear Markets.'  Kitces.com ,  www.kitces.com/blog/roth-conversion-bear-market-downturn-tax-savings-cost-conversion-averaging-isolate-ira-basis/?utm_source=chatgpt.com

3. 'Got an IRA? Here's How to Use the Bear Market to Your Advantage.'  Money ,  www.money.com/convert-roth-ira-bear-market/?utm_source=chatgpt.com