William Wang (UC-San Francisco; Google Scholar), A Roth Conversion Is Not Necessarily More Attractive During a Significant Stock Market Decline: Separating the Tax and Market Timing Effects, 50 Tax Mgmt. Compensation Plan. J. 10 (2022):

A Roth conversion is not necessarily more attractive during a significant stock market decline. Determining the benefit of a bear market conversion requires separating the market timing and tax effects.

When you convert, the so-called ‘‘tax’’ is the amount you pay to purchase the government’s ownership share of the joint venture traditional retirement account.

If you convert a traditional account containing shares, you raise your stock market exposure, for better or worse.

If you desire this increase, converting a stock traditional retirement account using outside cash is better than alternative transactions that also augment your stock holding, e.g., purchasing shares outright or, within your retirement accounts, shifting from cash/fixed-income into stock. Unlike the alternatives, the conversion shifts outside taxable funds into the Roth, the main benefit of any conversion.

The stock price decline may already have caused you to make adjustments elsewhere in your portfolio (including within other retirement accounts) to achieve your desired market exposure. For this or other reasons, you may not wish the conversion to enlarge your stock holdings. If so, you can reverse the increase by shifting from stock to cash within the new Roth.

As opposed to any market timing consequence, the conversion does not have a greater tax advantage in a bear rather than bull market. You are actually worse off tax-wise converting after a general stock market decline if your sole traditional retirement account is a traditional IRA with stock holdings. The lower the value of your only traditional IRA, the less ‘‘tax’’ on the conversion and the less shifted from an outside taxable account into the tax-exempt Roth.