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

Bruce Beaty – VP Business Consultant


It seems that everyone is talking about taxes and creating tax-free future income for clients.

Maybe it’s because its tax time, but there seems to be more conversation than ever around national debt (over $28 trillion), stimulus spending and that impact on future taxation, and our current administration has bluntly stated that it will purse 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. The time is now.

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. Check out this 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” 

Note: this is not the only product that could be used in this manner, give us a call and we can give you insight into other options.

Now what to choose for the receiving vehicle? There are several different angles to consider here when it comes to premium bonuses companies like Silac (up to 10%), Equitrust (up to 10%), AmericanLife (up to 16 + (3%)) and others offer large premium bonuses. These bonuses offset the tax impact on conversions at least up to a point.

Perhaps a flexible premium product to keep it simple (one policy, one application): Delaware or Nacolah are popular flex premium solutions. 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 7 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 (50% income-based bonus by year five), Allianz ABC (25%), Athene Agility (15%). Hey, if guaranteed income life is appealing, why not try tax free income for life?

If its “ leave on money” consider and enhanced death benefit product like Global Atlantic 7% simple for 15 years , Allianz ABC or AIG x5 benefit base 250%, or Athene Agility, or Americo’s Heritage Maximizer (30%).

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

In summary, there a so many different solutions, and I am only highlighting a few here, but the opportunity has never seen such a great sense of urgency as it is seeing today. The power of the Roth conversions include a qualifying distributions (see official rules for details @ irs.gov) being tax free, this includes income doublers, income rider distributions, free withdrawals, and death benefits (including enhanced death benefits.)

Attached you will find the sales idea mentioned up front for Social Security Maximization, but honestly this might be an even bigger opportunity. Check out Kurt’s updated product picks by clicking the button below, or even better call Kurt or Katie today for a run down on any of these or other product recommendations based on your clients’ needs and objectives.