The lesson I learned the hard way (2008) — and used on purpose (2020)

Early in my career, I used to get rattled by drawdowns. I came up investing around the 2008 crisis, and I learned something that changed everything: the dips are where the future money gets made — not because we “predict bottoms,” but because we keep a plan that lets us stay in the game and make intentional adjustments.

By the time 2020 hit, I wasn’t shocked — I was prepared. I stayed the course in broad index funds, but I also made a very specific kind of “move” I like during emotional markets: repositioning.

Example mindset: if a pre-tax account was $200,000 and a drawdown took it down ~40%, it might sit around $120,000. Converting at that level means more of the recovery can happen inside Roth. The mantra is simple: when it’s down… you convert.

The MAGI “unlock” near Roth IRA income limits (MFJ example)

When I was married earlier in my career, we kept brushing up against the Roth IRA income thresholds. I learned (honestly, kind of by accident) that you can use pre-tax 401(k) contributions as a staging lever to reduce AGI… and still convert strategically.

That means someone can be “near the line,” reduce AGI with pre-tax 401(k) deferrals, and still run a conversion plan — while understanding the difference between (a) what’s taxable this year vs (b) what counts for Roth IRA eligibility.

Important clarifications (so nobody gets tripped up)

• You can contribute to both Traditional 401(k) and Roth 401(k) in the same year. The employee elective deferral limit is shared (aggregate). (https://www.irs.gov/retirement-plans/retirement-plans-faqs-on-designated-roth-accounts)
• 401(k) elective deferral limits: $23,500 (2025) and $24,500 (2026) (catch-up separate). (https://www.irs.gov/retirement-plans/cola-increases-for-dollar-limitations-on-benefits-and-contributions)
• In-plan Roth conversions (Traditional 401(k) → Roth 401(k)) may be allowed by your plan. IRA → Roth IRA conversions are also common — but beware the pro-rata rule if you have after-tax basis in IRAs (“cream in coffee”). (Visual below.)
• Roth IRA direct contributions are limited by MAGI and filing status. (See Pub 590-A Table 2-1 / Worksheet 2-1.) (https://www.irs.gov/pub/irs-dft/p590a–dft.pdf)

Worked example: MFJ near the Roth IRA limit + the “staging area” concept

Step-by-step: the “pre-tax → conversion reaction” process (downturn edition)

1. Keep the engine running: keep investing (401(k), IRA, taxable) instead of freezing.
2. When markets drop, scan opportunity: look for quality that got hit by emotion (or stay purely index — your call).
3. Reposition tactically (optional): shift a portion toward temporarily mispriced quality, with a clear plan to return to core.
4. Taxable account tool (optional): harvest losses if appropriate, maintain exposure with a compliant replacement.
5. Conversion tool: convert pre-tax dollars when values are down (in-plan or IRA→Roth IRA), paying tax on a smaller number so the rebound can occur in Roth.
6. Rebalance back to core when the tactical trade matures and your gains normalize.

Decision tree: which path fits you?

“Cream in coffee” pro-rata visual (IRA conversions)

If you have both pre-tax and after-tax basis across your IRAs, the IRS generally treats conversions as a proportionate blend (not “just the cream”). In-plan conversions are a different lane than IRA pro-rata.

Roth ordering + access timeline (contribution → conversion → access)

If your plan is “Roth as the destination,” the timeline matters: Roth IRA contributions are generally accessible first; converted amounts have their own clock/rules; and earnings are last and most restricted. (High level educational view.)

Pre-Tax Saturation Gauge (interactive)

This calculator estimates whether your current pre-tax balance could become “hard to drain” before age 65 if it grows fast (default 10%) and you only start converting at a chosen age. It’s a planning gauge — not tax advice.

Mini-cheat sheet: the Roth IRA MAGI “back-out” step (why conversions don’t block eligibility)

Pub 590-A Worksheet 2-1 starts with AGI, then subtracts conversion/rollover amounts (line 2) to compute MAGI “for Roth IRA purposes.” [oai_citation:11‡IRS](https://www.irs.gov/pub/irs-dft/p590a–dft.pdf)