Investors have had to deal with extreme market volatility lately, and many of them are confused about what to do with their money right now. Rash decisions are never the best bet, but jumping on opportunities when they arise can lead to great results over the long run.

For retirement investors, one such opportunity has gotten even more attractive in light of falling stock prices. Roth IRAs let investors grow their retirement savings on a tax-free basis, and the ability to convert traditional IRAs and 401(k) plans to Roth IRAs gives everyone access to these valuable retirement accounts. There are costs related to Roth conversions that have made some investors reluctant to use them in recent years, but the market's swoon means that those costs will be less -- potentially opening up a chance to take advantage of what for these purposes are good conditions.

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The basics of Roth conversions

Thanks to major tax changes at the beginning of the 2010s, Roth conversions are now available to any taxpayer regardless of income. How it works is pretty simple: You arrange with the financial provider who manages your traditional IRA to have money moved into a Roth IRA account. That Roth can either already exist or be a new account. For those with 401(k) money with a former employer, you'll need to contact the HR department to get the transfer made.

The benefit of doing a Roth conversion is that from that moment onward, the income and gains that the investment assets inside the Roth produce will be tax-free. All you have to do is comply with the rules governing Roth IRAs, which generally require you to wait until retirement age before starting to pull out the income or gains from your account.

However, Roth conversions come at a cost. When you convert, the amount that you move to a Roth IRA is treated as taxable income in the year in which you make the conversion. This means that you're accelerating the tax liability on your retirement savings, essentially prepaying the tax that you'd otherwise be able to defer until you retire and actually pull money out of a traditional IRA or 401(k) account.

Doing a Roth conversion at a discount

It's this last point that's the most important for determining the tax impact of a Roth conversion. The value of your account at the time you convert determines how much extra taxable income you'll have as a result.

Thus, it's in your best interest to pick times when your traditional IRA or 401(k) accounts are suffering from downturns. Bear markets are ideal, because you can convert the same investments that you were holding for your long-term investing strategy and pay 20% less tax.

As an example, say that you have a traditional IRA that holds 100 shares of Apple. If you had converted at the stock's highs around $230 per share, you would've had to include $23,000 in your taxable income. However, when the price dropped to $145 per share in early January, you could have done the same conversion and paid tax on only $14,500. Depending on your tax rate, that $8,500 reduction in taxable income as a result of the timing of the Roth conversion could have saved you $850 to $3,145 in taxes.

A new challenge for Roth conversions

Timing used to be far less important, because the former tax rules basically let you change your mind if it turned out you'd chosen a bad time to convert. By doing what's called a Roth recharacterization, you could undo the conversion transaction and essentially start over. However, tax reform changed that, disallowing recharacterization for Roth conversions.

That's what makes taking advantage of bear-market opportunities to consider conversions much more important. You never know how long your stock portfolio will be down in value, and if you do the conversion after your investments have recovered, the gains would get taxed.

Take a closer look

To be clear, Roth conversions aren't right for everyone. If you're in a high tax bracket now and expect to be in a lower one in retirement, then you're typically better off not to convert. However, it's important to keep in mind that today's low income tax rates for individuals are set to expire in the mid-2020s, and if no action is taken to preserve them, higher rates could come back.

Bear markets are painful, but they can have silver linings. If you have money in traditional IRAs or 401(k) accounts, take a closer look to see whether a Roth conversion could give you the chance to maximize your tax-free growth between now and when you retire.