Buying Assets, Not Emotions: Q4 Strategic Roth Conversions

Every year, investors experience a mix of optimism and anxiety as markets move into the fourth quarter. Between talk of recessions, “tariff tantrums,” “new highs for the national debt” ($38 trillion and rising), and election noise, emotional decision-making tends to increase, and with it, costly mistakes. At Heritage Capital, we believe the final months of the year are not a time for emotional investment decisions, but rather a time for updating existing plans and creating new ones.

Specifically, Q4 is one of the best times to consider a Roth IRA conversion, especially when market volatility creates an opportunity to invest at lower prices. When others are selling out of fear, disciplined investors are often buying when assets are on sale and reevaluating their long-term goals to make them more tax-efficient. 

What a Roth IRA Conversion Really Means (and Why It Matters)

A Roth IRA conversion is the process of transferring money from a traditional IRA, which grows tax-deferred, to a Roth IRA, where growth and withdrawals are tax-free in retirement.

When you convert, you pay ordinary income tax on the amount you move to the Roth IRA, but after that, those dollars continue to grow tax-free for the rest of your life. That means no taxes on future earnings, no required minimum distributions (RMDs), and more flexibility in managing retirement income and estate planning. The most significant benefit unique to Roth IRAs is the ability to make free distributions.

Let’s look at a typical transfer:

Suppose you have $50,000 sitting in a traditional IRA that is invested in a diversified portfolio of stocks and bonds. You decide to convert that amount into a Roth IRA this year. If you’re in the 22% federal tax bracket, you’ll owe about $11,000 in taxes on the conversion (22% of $50,000) the following April on tax day.

Now imagine that over the next 15 years, that $50,000 grows to $150,000. Because it’s now in a Roth IRA, you’ll never pay another dollar in taxes on that $100,000 of appreciation (realized gains, income, distributions). Meanwhile, someone who left their funds in a traditional IRA would owe taxes on every future withdrawal forever.

That’s the long-term advantage of strategic Roth conversions; you pay a known tax bill today (the following April) to avoid unknown tax payments in the future. As a high-net-worth investor focused on retirement planning in Connecticut, this can be one of the most effective ways to create a tax-efficient retirement income strategy.

At Heritage Capital, our fee-only financial advisors in New Haven, CT, can help you evaluate your tax situation to determine when and how much to convert. The goal isn’t to time the market; it’s to use opportunities like market pullbacks or lower-income years to make conversions at a discount, locking in long-term, tax-free growth and distributions.

Why Q4 Is Prime Time for Roth Conversions

Retirement planning in Connecticut involves more than saving and investing; it’s about managing taxes strategically over your lifetime. The fourth quarter presents a window of opportunity because:

• You have a clearer picture of your net income that year and tax bracket.
• Markets often experience volatility, which can lower the value of the assets you’re converting, meaning you’ll pay a lower tax on a smaller amount. 
• You can still act before December 31, ideally by Christmas, when the window for that year’s conversion opportunity closes.

At Heritage, we don’t chase market headlines. If it is in the news, that means it has already happened, and people have acted on it. We analyze data in real-time, evaluate tax consequences, and align conversions with each client’s broader retirement plan. 

Watch Paul Schatz discuss: Tariff Crash to Tariff Surge.

The Danger of Emotional Investing: Remember April’s “Tariff Tantrum”

In April of 2025, markets saw what many analysts dubbed the “tariff tantrum.” Investors reacted emotionally to tariff headlines, panic selling in what I have described as the single largest mass liquidation of stocks ever. Pundits and the media discussed a long-term bear market, recession, and even a repeat of 2008’s economic collapse. 

This type of behavior illustrates why emotional investing is detrimental to long-term success. Your most significant long-term risk is a failure to pursue your long-term goals. At Heritage, we refer to it as the “buy high, sell low” syndrome, one of the most frequent ways investors undermine their otherwise sound financial plans.

A fee-only financial advisor in New Haven, CT, can help prevent that. We act as a rational counterweight when emotions run high. Our process focuses on following the Federal Reserve, economic indicators, and market data, not headlines that describe what happened yesterday. Our disciplined advice helps our clients identify opportunities, such as Roth conversions, to improve the tax efficiency of future distributions.

Read our Quick Guide: “The Ultimate Guide to Wealth Management for High Net Worth Individuals.”

Buying Assets, Not Emotion

When volatility hits, most investors see risk. We see the potential for improved valuations and buying opportunities.

For example, the timing of a Roth conversion is most effective when asset prices are low, not high. By converting assets at lower valuations, you move more future growth into the tax-free column without paying excessive amounts of taxes.

For example, imagine your traditional IRA holds $200,000 in growth-oriented stocks. If a short-term market dip brings that value down to $160,000 and you convert during that period, you pay taxes on $160,000 instead of $200,000. When markets recover, all future gains compound tax-free inside your Roth IRA, and future distributions are also tax-free.

This kind of strategic thinking distinguishes disciplined investors from those who make emotional investment decisions. The goal isn’t to time the market; it’s to use volatility as a tax-advantaged strategy in your retirement planning strategy.

Understanding the “Proper Risk” in Today’s Market

Risk isn’t the enemy; markets have been going up and down for 100 years. It’s an opportunity to fine-tune your portfolio for the future. Unfortunately, many investors misjudge their exposure to risk and taxes, either overexposing their portfolios during bull markets or retreating too quickly during bear markets.

Our investment process integrates both historical and current market data to determine where risk is being rewarded versus where it has negative consequences. We don’t believe in “set it and forget it” portfolios. We continually analyze trends, Federal Reserve policy, corporate earnings, and long-term global influences to determine the optimal time for selling, buying, and transferring assets.

For high-net-worth investors exploring retirement planning, year-end planning helps align growth opportunities with year-end tax strategies to optimize returns. That’s precisely where Roth conversions fit in, taking advantage of volatility to make disciplined decisions that impact future returns.

The Long-Term Power of Tax-Free Growth

It’s easy to underestimate the impact of tax-free growth and distributions. Unlike traditional IRAs, Roth IRAs also have no required minimum distributions (RMDs), allowing your money to stay invested longer. If you’re considering future generations, Roth assets can pass to your heirs tax-free under current law.

Here’s why converting in a volatile Q4 can make sense:

• You lock in today’s lower tax rates.
• You hedge against the risk of higher taxes or inflation eroding future returns.

Even if your marginal tax rate rises slightly this year, the long-term benefits of tax-free compounding often outweigh the short-term tax consequences, particularly when guided by an experienced, fee-only fiduciary financial advisor.

Avoiding the “Buy High, Sell Low” Trap

The number one mistake we see investors make, particularly during periods of market stress, is reacting emotionally to market volatility. They do not see lower prices as a buying opportunity. In fact, they often sell and wait for prices to rise again before reinvesting their assets. 

This behavior not only reduces returns long term but also impacts your opportunities to make strategic tax moves, such as Roth conversions.

Our clients at Heritage Capital don’t have to worry about chasing markets after they have moved or panicking when they keep going down. We emphasize data-driven disciplines for our clients:

• When others panic, we evaluate.
• When others chase, we calculate.
• When others sell, we recommend buying. 
• When the market is down, we seek tax-efficient opportunities to invest in assets with future potential. 

In short, we specialize in acquiring assets at attractive prices for our clients. We then recommend making smart moves to minimize taxes in the future. All, while reducing taxes on future returns and distributions.

When to Consider a Roth Conversion

A Roth conversion can make sense if:

• You expect higher tax rates in the future. 
• You have funds outside your IRA to pay the conversion tax.
• You want to leave tax-free assets to your heirs.
• You’re approaching or in early retirement and want to manage future RMDs.

However, every situation is unique. That’s why Heritage Capital runs detailed projections before recommending the best time to make a conversion. We assess your income levels, tax brackets, and market conditions, rather than relying on subjective guesswork.

If you’re switching financial advisors or changing financial advisors because you’re looking for more strategic tax and investment guidance, it may be time for a second opinion on your Roth conversion opportunities before year-end. Connect with us to discuss your year-end tax planning strategies.