When visiting the doctor, does he or she ask foundational questions to help determine your medical condition? Of course. “How are you feeling?” “Are you a smoker?” “What hurts?” Does the doctor take some basic measurements – height, weight, blood pressure? Does he listen to your heart and lungs? Most assuredly.
The doctor is establishing an overall picture of health so as to make informed medical decisions. Without such elemental knowledge, how could a proper diagnosis be made? How could “next steps” be recommended with any confidence? It is not possible to provide appropriate care or guidance simply by looking at a person. Assumptions could be a death sentence.
Who else needs to ask elemental questions? Who else needs to poke and prod to identify foundational information? Financial advisors. It is impossible to chart a path forward without a general understanding of a person’s overall financial goals and wellbeing. Probing questions are how advisors identify the suitability of certain transactions. They are how advisors can confidently make investment recommendations. Investigative inquiries uncover needs and other issues that are literally impossible to know without asking.
Yet for some reason, I keep hearing stories about financial advisors failing to address a certain topic: Roth conversions. In fact, members of my family fell victim to this financial oversight. Out of respect for their privacy I stayed out of their financial affairs. Sadly, I learned later, their previous advisor never broached the subject of Roth conversions. Partial Roth conversions, systematically implemented over a few years, coordinated with their tax advisor so as maximize tax brackets, would have been a prescription for financial health. My family member could have transitioned their IRAs from “forever taxed to never taxed.”
Alas, they missed all those years of maximum conversion tax efficiency. Yes, they can still do Roth conversions now, even though they are of RMD age, but it is a little less potent. RMDs must be taken first, and it is expected that taxes could rise in the near future.
Like a doctor administering a basic blood pressure test, a financial advisor inquiring about Roth conversions is critical. If your advisor fails to ask, then broach the topic yourself. Know that a Roth conversion is no panacea, and it is not always a good fit for every situation. But at least you can rest easy knowing you had the conversation.
I am frequently asked, “When is the cutoff when Roth conversions stop making sense?” The answer is never. There is no such end date. I don’t care how old a person is or how much money they have or what tax bracket they exist in. Simply assuming a person won’t do a Roth conversion based on any data point is borderline malpractice. Maybe a person’s supreme goal is to leave a tax-free inheritance to their heirs. If that is the ultimate objective, then tax brackets and additional tax on Roth conversions after taking an RMD be damned.
If you have not discussed systematically converting pieces of your existing IRA into a Roth IRA you may be doing a disservice to your children. Would you like to come in for a complimentary consultation to see if this is the right strategy for you? I am an Ed Slott Master Elite trained IRA Specialist and I would like to help you. Please call my office at 845-627-8300. My Client Service Coordinator will be happy to set up a convenient time so I can help.
Beth Blecker, CEO, Eastern Planning Inc.
Follow Beth Blecker on Twitter: @EasternPlanning
“Ed Slott’s Elite IRA Advisor Group” is solely an indication that the financial advisor has attended training provided by Ed Slott and Company. Ed Slott is not affiliated with Royal Alliance Associates, Inc. Securities and advisory services offered through Royal Alliance Associates, Inc. Member FINRA/SIPC. Securities and advisory services offered through Royal Alliance Associates, Inc. (RAA), member FINRA/SIPC. RAA is separately owned and other entities and/or marketing names, products or services referenced here are independent of RAA. Copyright © 2021, Ed Slott and Company. Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.