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Understand the Roth Conversion Opportunity for Clients and Your Business

Converting money from a traditional retirement account to a Roth account is not a new retirement planning strategy, but it’s experiencing a renewed sense of urgency – and that means a timely opportunity for you to help clients and grow your business.

Because withdrawals from Roth individual retirement accounts (Roth IRAs) in retirement are tax-free and there are zero required minimum distributions (RMDs), the Roth IRA conversion opportunity may be a way for your clients with traditional individual retirement accounts (IRAs) or qualified plan rollover assets to take advantage of the Roth IRA’s tax-free income privileges – they pay taxes at the time of conversion in exchange for tax-free growth and income later in retirement.

When you show clients that you can help them lower their tax burden by using tax-efficient retirement income strategies like the Roth conversion, you show your value. You not only retain their business but also increase the chances that they’ll spread the word about your smart advice. And that can grow your business.

What’s Causing the Buzz Now

Income tax rates are historic lows. But as the White House pushes for an overhaul of the U.S. tax system, they’re expected to climb in the next year or two. Clients who expect to be in a higher tax bracket in future years might benefit from paying taxes at today’s lower rate instead of that anticipated higher rate.

In addition to the anticipated tax legislation, other past and newly proposed legislation has stirred the talk about Roth conversions. The Setting Every Community Up for Retirement Enhancement (Secure) Act of 2019 raised the age of RMDs from 70½ to 72 and eliminated the “stretch” provision, which allowed nonspouse beneficiaries of IRAs to take withdrawals over the beneficiary’s lifetime. The Secure Act requires that withdrawals by nonspouse beneficiaries be taken within 10 years. Planners savvy enough to know about Roth conversions have been using them as a retirement planning tool since the Secure Act’s passage.

The latest legislation under consideration is the Securing a Strong Retirement Act of 2021, called the Secure Act 2.0. It would raise the required minimum distribution age from 72 to 75 over 10 years and expand automatic enrollment in retirement plans, among other provisions.

The Opportunity

The retirement planning community has generally welcomed these proposed changes, saying they account for increased lifespans and allow Americans to save more for retirement while granting them greater flexibility and control over those savings. Still, others say the raising the RMD age multiple times is confusing – it jumps to 73 starting on Jan. 1, 2022; to 74 starting on Jan. 1, 2029; and 75 starting on Jan. 1, 2032 – and will force those who do take their distributions later to pay higher tax bills eventually.

But that’s where the opportunity for you lies.

If the Secure Act of 2019 ignited the latest Roth conversion discussion, the Secure Act 2.0 is only adding fuel to the fire. And not only among retirement planners. Consumers are getting the message that Roth conversions can save them from big tax bills. Bob Carlson, a senior contributor to Forbes, urges readers to “re-assess the conversion decision throughout the year, every year,” to maximize after-tax wealth.

And retirement planning in general is under the collective microscope even more following the COVID-19 pandemic, which highlighted the high cost of health care, the vulnerability of seniors in group facilities and other long-term care challenges. The pandemic may result in consumers shifting away from nursing homes and assisted living facilities, according to The Associated Press National Opinion Research Center. With the cost of at-home care rising sharply compared with assisted living and nursing home care, those wanting to age in place especially need strategic, effective retirement planning.

Support for Roth Conversions

If you would like to learn more about utilizing Roth conversions with your clients, download this free eBook. It covers everything you need to know about when to consider Roth conversions and how these techniques can create tax efficiencies in your clients’ retirement plans.

By working with the Nationwide Retirement Institute, Senior Market Sales® (SMS) also can provide white papers, including one detailing President Biden’s tax plan and the opportunities within it. And when you’re ready to explore Roth conversions for specific clients, SMS can provide expert guidance on the variety of strategies available, so you can navigate any client case. Call an SMS marketing consultant for the resources and expert guidance at 1.877.645.4939.

Rollovers and Regulations

As you consider Roth conversions, it’s important to keep up-to-date on the ever-changing regulatory environment. While details continue to emerge as to what the Department of Labor (DOL) deems as fiduciary device, the DOL has been clear that offering rollover advice can cause an advisor to become subject to fiduciary standards.

SMS continues to monitor the situation and provide resources to help you navigate the latest DOL developments, plus the tools and processes to meet the new regulatory demands.

If you’d like discuss the Roth conversion opportunity or any of the support mentioned here, call 1.877.645.4939 to speak with an SMS marketing consultant.


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