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It’s Open Season for Roth Conversions – Make Sure You’re Hunting for Them

It seems that everyone is talking about taxes and ways to create tax-free future income for clients. Maybe it’s because we’re in tax season, but there seem to be more conversations than ever around national debt (over $28 trillion), stimulus spending, and the impact these factors have on future taxation. In addition, our current administration has bluntly stated that it will pursue higher corporate and personal tax rates.

Now more than ever you have an opportunity to engage with your clients in tax planning and Roth conversion conversations. It is open season for Roth conversions. Make sure you’re looking for them!

I noticed this week that one of our carrier partners was highlighting a product that allows for a 10% penalty-free withdrawal based on the original deposited amount (rather than the current account value). This is unique in the annuity space and positioned as a way to build an income bridge to maximize social security. (See attached sales idea from F&G on the Flex Accumulator) It got me thinking that this could be the ultimate “deployment vehicle” for Roth conversions. To clarify, this product receives the rollover, say $500,000. Then the liquidity is used to send $50,000 in conversions each year going forward to the “receiving vehicle” beginning in year one. The even better news is that this isn’t the only product that can be used in this manner (e.g., Allianz 222, and Athene Agility).

Now what to choose for the receiving vehicle? There are several different angles to consider here, companies like Silac (up to 10%), Equitrust (up to 10%), American Life (up to 16 + (3%)) and others offer large premium bonuses. These bonuses offset the tax impact on conversions at least up to a point. Similarly and keeping it simple, perhaps a flexible premium product (one policy, one application) is the answer (Delaware, NACOLAH). All future growth would be tax-free and the client has the flexibility for whatever they want and need when it comes to distributions. With surrender periods as short as seven years and trail commissions available, the possibilities are vast.

Consider a large income bonus: Nassau RE (up to 45%, or 14% simple), Global Atlantic Income 150 with a 50% Income base bonus by year five, Allianz ABC (18%), and Athene Agility (20%). Hey, if guaranteed income for life is appealing, why not try tax-free income for life.

If “live-on” income isn’t a consideration and your client is looking for “leave on” money, consider an enhanced death benefit product like Global Atlantic 7% simple for 15 years , Allianz ABC, or AIG x5 benefit base 250%, or Athene Agility, Americo’s Heritage Maximizer (30% for 30 bps) or the Bene Booster 25% of gains on the product (no explicit fee).

If you really want to get creative, take the $50K and put it into a single premium life product like Equitrust, NWL, or Sagicor. Depending on the age and carrier, that $50K could buy upwards of $100K in death benefit.

In summary, there are so many different solutions and we are only highlighting a few here. The opportunity has never seen such a great sense of urgency as it does today. The power of the Roth conversion includes qualifying distributions (see official rules for details being tax-free. This includes income doublers, income rider distributions, free withdrawals, and death benefits (including enhanced death benefits.).

Check out Kurt’s updated product picks, or even better call Kurt or Katie today for a rundown on any of these or other product recommendations based on your clients’ needs and objectives.

Check Out Kurt's Product Picks