The Tax Cuts and Jobs Act significantly lowered marginal income tax rates for most people, and many advisors are evaluating Roth conversions for their clients. Income InSight® makes Roth conversions easy by offering a multi-year Tax Map that shows key opportunities to convert. Use the software to select harvesting patterns and determine which options are the most tax-efficient. Show your clients the impact a Roth conversion has on their overall retirement, and how you can help them make tax-smart retirement decisions.
Seeing the impact of Roth conversions in Income InSight is simple. And clients are thrilled when you show them the bottom line impact you can make to their lifestyle.
Show Your Clients the Tax Ramifications of Moving Money In and Out of a Roth
Most people follow the traditional retirement income pattern: taking Social Security as soon as possible, using non-IRA money for as long as possible, then getting into IRA money when the non-qualified money runs out or they are forced to because they hit age 70 1/2 . If they have Roth money, they use it last, if at all. But Roth IRAs can have some advantages over traditional IRAs and 401k plans, such as no required minimum distributions. Your clients may be able to avoid immediate taxes by allocating the after-tax funds in their retirement plan to a Roth IRA.
In a Roth conversion, your client will push money from a traditional IRA or 401k directly into a Roth IRA. They will pay taxes on that money right away, but once it's in the Roth, it will grow tax free and future withdrawals are tax free (under current tax law). Roth conversions are different than Roth contributions in that your clients can do them in any year, regardless of income and regardless of whether they are working. Your clients will pay income tax as of the date of the conversion. There is no contribution limit and Roth growth is tax free.
There are a variety of different conversion patterns to consider. You could harvest to the top of the 12% bracket, to a Medicare premium surcharge threshold, to the top of the 24% bracket, or to the lifetime effective rate. In the last case, you would only convert until your client hit an effective marginal rate that is higher than what they would have paid on average each year had they followed the traditional harvesting pattern. How do you do that?
Identify the optimal Social Security claiming strategy
Generate annual Tax Maps
Identify the average lifetime effective tax rate from the base case
Annually convert until an effective marginal rate is reached that is higher than the effective tax rate from the base case
Roth Conversion Strategies Are Three Clicks Away
Income InSight will automatically generate all of this for you. From the Income InSight report page:
Click on the plan tab on the right-hand side of the page
Select the change harvesting pattern button
Select the harvesting pattern you'd like to demonstrate and click save
Make a Difference for Your Clients
Your clients might not realize that each decision made about their retirement plan can impact other areas. Use Income InSight navigate your Roth conversion conversations with clients. This retirement planning platform provides the structure for a systematic, scalable financial planning process. Plus, with your subscription, you get an entire support team to help you answer subject matter and software questions. Use Income InSight to help you grow your business.
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