Is it better to wait for a market downturn to do a Roth conversion?
On average, the market will be down 1 year out of 4. 26 of the last 100 years on the S&P were negative. The Roth conversion offers a unique opportunity to convert early in the year, and decide at tax time next year whether you are happy with the result. Of course, if your fund or stock is up, you are likely better off, paying the $1250 tax on the $5000 conversion that's now worth $6000 or more. If it's down, you can recharacterize. The volatility of the market helps makes this process more attractive. If my converted shares dropped quite a bit, the recharacterization is far more desirable than a small drop or no drop at all. Of course we don't wish for that drop, any more than we wish for our house to burn down to make our insurance pay off.  To be clear, you'll benefit from a conversion she the market goes up. The downturn only lets you reverse the bad move.
Part of the difficulty in this sort of planning is that you are also betting on future tax rates and comparing them with current taxes.  If you are in a low tax bracket now, but expect to be in a higher one when you take the money out, it is better to pay the taxes now.  If you are in a high tax bracket now, but expect to be in a lower one when you retire/take the money out, then it is better to defer the taxes until then.  If you think that future sessions of Congress will decide to tax withdrawals from Roth accounts, then you should contribute to traditional accounts.  The problem is that you don't know with certainty what the future will bring. So you have to make educated guesses about what might happen, and what you can do now to protect yourself from it. Ideally, plan so that even if the bad things happen, you will be reasonably comfortable. My advice would be to invest in the 401k with the same type of funds you'd purchase when you rollover to your IRA. They are both retirement accounts. If the stock market tanks, your 401k balance will be low but you'll also be purchasing stocks at a much cheaper price when you establish your roth. You should create an asset allocation based on your age, not on the type of retirement account you have. One question to consider: When you do become a student, you'll likely be a in lower tax bracket. Can you contribute pre-tax dollars and then rollover to a ROTH in the year that you're a student? "I will solely address your fear because from what I read you fear investing in something that could possibly go down in the future.  This is almost identical to market timing, so let's use the SPY as an example.  Look at the SPY on Yahoo Finance, specifically in 2011.  The market experienced a little bit of a pull back during the year, and some ""analysts"" claimed that it would fall below 600 (read this).  In fact, a co-worker of mine said that he feared buying the S&P 500 in 2011 (as well as in 2010), so he bought gold (compare the two from 2011 to now - to put it bluntly he experienced 50% less gain than I did). Did the S&P 500 ever fall below 600 in that timeframe, or according to the linked analyst (there were plenty of similar predictions then)?  No.  If you avoid doing something because you're afraid it could drop, technically, you should be just as afraid of it rising (Fear of Losing Everything, FOLE, vs. Fear of Missing Out, FOMO - both are real).  That's not to say invest out of fear, but that fear cuts both ways, and generally, we only look at it from one side. Retirement investing should be a boring, automated process where, ideally, we don't try and time the market (though some will try, and like in 2011, fail).  If you can't help your fear, you can always approach retirement investing with automated re-balancing where you hold some money in ""less risky"" forms and others in ""higher risk"" forms and automate a rebalance every month or quarter." "The answer comes down to what you expect the future tax rate to be. If that tax rate is the same (25℅ marginal here), then it is a wash. Yes you will pay more taxes when you pull the money out with a traditional, but it is the same fraction of the original contribution as when you pay the tax now to convert to Roth (all you did was invest uncle Sam's money well). So if you expect to pay higher tax rate on retirement then a ROTH could be beneficial. Also a ROTH does not have a required minimum distribution (but Congress can change that and it has been proposed). The argument for leaving the money in the traditional is that you expect a lower tax rate on retirement. Or you don't trust that a future Congress won't decide to add a ""nominal"" tax to ROTH distributions.  Now if there is a year where your tax rate is very low, then a partial conversion may well be worth it. Also if you your balance is insufficient for a good portfolio and future contributions will be to a ROTH due to income limits, then that would also be a very good reason to convert." "I wouldn't worry about ""it probably wouldn't be best time for withdrawal"" aspect too much.  With a bit of planning and organization, you could cash out investments held in one country and have them reinvested in another one in a matter of days (if not less), minimising your ""time out of the market"".  If the markets are cheap when you sell, the chances are you'll be able to buy in again at much the same price.  There's a small chance you miss out on the markets lurching upwards, but you might just as easily miss out on a fall and come out ahead.  Old saying: ""time in the market is more important than market timing"". Tax it's hard to discuss without mentioning specific countries.  e.g if you were resident in the UK you'd probably want to invest within an ""ISA"" tax-free wrapper; gains are tax free and there's no penalty for withdrawing when you leave.  No idea what equivalents there are around Europe. Interestingly there seems to be some recognition by the EU that this sort of thing is an issue for an increasingly mobile workforce; was recently some news of plans for a pan-European pension savings vehicle." If you're worried about investing all at once, you can deploy your starting chunk of cash gradually by investing a bit of it each month, quarter, etc. (dollar-cost averaging).  The financial merits and demerits of this have been debated, but it is unlikely to lose you a lot of money, and if it has the psychological benefit of inducing you to invest, it can be worth it even if it results in slightly less-than-optimal gains. More generally, you are right with what you say at the end of your question: in the long run, when you start won't matter, as long as you continue to invest regularly.  The Boglehead-style index-fund-based theory is basically that, yes, you might save money by investing at certain times, but in practice it's almost impossible to know when those times are, so the better choice is to just keep investing no matter what.  If you do this, you will eventually invest at high and low points, so the ups and downs will be moderated. Also, note that from this perspective, your example of investing in 2007 is incorrect.  It's true that a person who put money in 2007, and then sat back and did nothing, would have barely broken even by now.  But a person who started to invest in 2007, and continued to invest throughout the economic downturn, would in fact reap substantial rewards due to continued investing throughout the post-2007 lows.  (Happily, I speak from experience on this point!) Depends on how long you're willing to invest for. Broadly speaking, the best (by which I mean, more reliably repeatable) way to make money from market corrections is to accept them as a fact of life, and not sell in a panic when they happen, such that the money you already invested can ride back up again. Put another way, just invest your money in one or two broad, low cost index funds with dividends reinvested (maybe spreading your investment over the course of six months or so) and then let time do its work. Have you worked out how much you've missed out on by holding your money as cash all this time (I presume you've been saving up a while) instead of investing it as you went? I suspect that by waiting for your correction, you've already missed out on more than you're going to make from that correction. "Do you want to do it pre or post correction? If you're bearish on the market the obvious thing to do is short an index. I would say this is kind of dumb. The main problem is that it may take months or years for the market to crash, and by then it will have gone up so much that even the crash doesn't bring you profit, and you're paying borrowing fees meanwhile as well. You need to watch the portfolio also, when you short sell you'll get a bunch of cash, which you most likely will want to invest, but once you invest it, the market can spike and pummel your short position, resulting in negative remaining cash (since you already spent it). At that point you get a margin call from your broker. If you check your account regularly, not a big deal, but bad things can happen if you treat it as a fire and forget strategy. These days they have inverse funds so you don't have to borrow anything. The fund manager borrows for you. I'd say those are much better. The less cumbersome choice is to simply sell call options on the index or buy puts. These are even cash options, so when you exercise you get/lose money, not shares. You can even arrange them so that your potential loss is capped. (but honestly, same goes for shorts - it's called a stop loss) You could also wait for the correction and buy the dip. Less worrying about shorts and such, but of course the issue is timing the crash. Usually the crashes are very quick, and there are several ""pre-crashes"" that look like it bottomed out but then it crashes more. So actually very difficult thing to tell. You have to know either exactly when the correction will be, or exactly what the price floor is (and set a limit buy). Hope your crystal ball works! Yet another choice is finding asset classes uncorrelated or even anticorrelated with the broader market. For instance some emerging markets (developing countries), some sectors, individual stocks that are not inflated, bonds, gold and so on can have these characteristics where if S&P goes down they go up. Buying those may be a safer approach since at least you are still holding a fundamentally valuable thing even if your thesis flops, meanwhile shorts and puts and the like are purely speculative." You are not allowed to pick and choose what years to take a loss once the stock/fund is sold.  While I realize it might be too late for you to do anything now, in the future if members should read this, they might consider doing a Roth conversion during that year they will have $3000 in losses. This way they will show some income that can be offset by that loss, effectively getting a free conversion to the Roth. For #1, I see no advantage in putting money from your non-retirement savings into a Roth just for the purpose of using it as a down payment on your house.  Why not just put the $5.5K directly toward the down payment? For #2, dollars converted from a traditional 401K or IRA to a Roth are considered income, and will be taxed at your marginal rate.  So if your marginal tax rate is 25%, you will need to pay $5K in order to convert the $20K.  Usually this payment is done independent of the conversion amount--in other words, you would convert the full $20K but pay the $5K in taxes out of other funds (checking/savings). Based on your stated goals of using the money for a down payment on a house, I don't see any advantage to contributing (or converting) to a Roth IRA. I don't believe in letting the tax tail wag the investing dog. You have a stock you no longer wish to hold for whatever reason? Sell it. But to sell a loser, hoping it doesn't rise by the time you wish to re-buy it in 30 days is folly.  This effort may gain you $50 if done right. No, it's not worth it either way. "Assuming you are referring to macro corrections and crashes (as opposed to technical crashes like the ""flash crash"") -- It is certainly possible to sell stocks during a market drop -- by definition, the market is dropping not only because there are a larger number of sellers, but more importantly because there are a large number of transactions that are driving prices down. In fact, volumes are strongly correlated with volatility, so volumes are actually higher when the market is going down dramatically -- you can verify this on Yahoo or Google Finance (pick a liquid stock like SPY and look at 2008 vs recent years). That doesn't say anything about the kind of selling that occurs though. With respect to your question ""Whats the best strategy for selling stocks during a drop?"", it really depends on your objective. You can generally always sell at some price. That price will be worse during market crashes. Beyond the obvious fact that prices are declining, spreads in the market will be wider due to heightened volatility. Many people are forced to sell during crashes due to external and / or psychological pressures -- and sometimes selling is the right thing to do -- but the best strategy for long-term investors is often to just hold on." "Like JoeTaxpayer said, I don't know of any difference between the backdoor and a regular Roth IRA contribution besides the issue with existing pre-tax IRA money. So if it is your practice to contribute at the beginning of the year (good for you, most people wait until the last minute), then doing a backdoor seems like the safe choice. Some people have speculated that, hypothetically, the IRS could use the ""step transaction doctrine"" to treat it as a single direct contribution to a Roth IRA (which then would be disallowed and cause you a penalty until you take it out), but I have never heard of this happening to anyone. As for the paperwork, you just need to fill out one extra form at tax time, Form 8606 (you need to complete two parts of it, one for the non-deductible contribution, and one for the conversion). It is pretty straightforward. (Although I've found that it is a pain to do it in tax software.) Another option would be for you to contribute to a Roth IRA now, but when you discover that you're over the limit at the end of the year, re-characterize it as a Traditional contribution and then convert it back to Roth. But this way is not good because then there is a long time between the Traditional contribution and the Roth conversion, and earnings during this time will be taxed at conversion." "no, good questions my friend.  when did you do this rollover? if it was this year, your firm should have forms that you can fill out to ""undo"" the roth conversion - only earnings on your investments will be taxed, and everything gets rolled over to a traditional IRA. not fun for tax filing but...  you can also leave them as is and pay the taxes (usually only a good option if it's a low income year for the filer).  i would consult your tax advisor regardless in this situation." ok if you haven't rolled in the 401k assets yet, you're fine and should put them into a traditional.  if your earnings + roth conversions will put you at or below your anticipated tax bracket during retirement, then the roth conversion might make sense.  in some cases, employers will give you a roth 401k option, but you are right that it's not the default.