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The Roth Revolution

Bruce Beaty MBA,CLU, ChFC, RICP, LACP, CSA – VP, Business Consultant

As a planning tool, Roth IRAs have many advantages including the ability to create tax-free growth, income, and death benefits as articulated in David McKnight’s book, “The Power of Zero.”

Roth IRA contributions are limited based on earned income and include a phase-out range depending on one’s tax status:

  • Single $122,000-$137,000
  • Joint $193,000-$203,000

However, Roth conversions are available to all, and while a conversion will increase this year’s taxable income, many experts agree that income taxes are “on sale,” including industry guru and CPA, Ed Slott.

Some clients may have more flexibility in controlling their taxable income than others in any given year, including clients with other tax-free options like existing Roths, cash value life insurance, as well as business owners. These individuals can reduce their taxable income without affecting their lifestyle, and create a taxable income vacuum. (This creates room in their tax bracket to conduct a conversion without increasing their marginal rates to excessive levels.)

Every one of your clients has the opportunity to consider a conversion and for many that may make a lot of sense to do now and for the next several years under the current tax structure.

Here is an example:
Consider an example of a married couple age 65+ filing jointly with $30,000 of Social Security as their base income and $3,300,000 or less in retirement accounts.

Note: 2019 standard deduction (65+ joint) = $27,000

Income: Fed Tax: Taxable:
Social Security 30,000 X85% 25,500
IRA & Other 166,100 166,100
Total 196,100 191,600
Standard Deduction -27,000
Net Taxable 164,600
(10% bracket – Max 19,400) 19,400 X10% 1,940
(12% bracket – Max 78,950) 59,550 X12%
(22% bracket – Max 168,400) 85,650 X22%
Total 27,929 = 14%

With a life expectancy of 20 years, your client can use or transfer from their retirement accounts up to $166,100 per year or $3,322,000 at 14% income tax.

The Bottom Line?

With the premium bonus options available some up to 12-13% (and even one year in the fixed bucket), your clients can be made whole from the tax impact in as short as one year, and now they have the ability to
capitalize on all the benefits of a Roth IRA. Some producers also like to use a large income rider bonus solution for clients. Besides, who doesn’t like the sound of tax-free income for life and a tax-free death benefit to boot?

Contact our Asset Marketing Systems Team to explore the best options for your clients today at 888-303-8755.

-Bruce Beaty

VP/ Business Consultant