Roth IRA Conversion Ladder

[RunnerDude]

I am working with a married couple (65 and 63) who are retiring soon. The 65 -year-old has qualified IRA worth about $70,000 and the 63-year-old has a qualified 401k valued at about $70,000. I'm not sure what type of stock portfolio each has. Since I don't hold a Securities License, I haven't asked too many questions about their investments. I do know that they are both qualified. The 63-year-old plans to work until age 65 (about 1.5 years longer). Apart from about $3,600 per month in social security, this is all they have for retirement. I plan to suggest that they use about $100,000 to invest into a Fixed Index Annuity (probably Athene). I brought up the idea of doing a Roth Conversion so that their retirement income will be tax-free, but they do not have the funds to pay taxes. I also considered a Roth Conversion Ladder, but I'm not clear on how it would work if income is needed right away. I know they will have to wait five years before taking out any gains within the policy to avoid penalties. If they only take out the part they actually invested, how will that affect future income from the annuity?

 

[Allen Trent]

based on what you are stating, I dont know that they are Roth Conversion candidates. unless you dont know about sizeable other retirement assets, these clients will be in very, very low or even no income tax in retirement. Converting now while they are working would force them to pay taxes on the conversion on top of their current working income. Based on the numbers you state of $3600 per month SS, these clients could have another $1700 per month in other income like IRA/interest, etc without owing anything in Federal income taxes because their standard deduction is $27k & Social Security itself isnt taxable unless the calculation exceeds the specified amount

Unless they bring more info on other assets or retirement funds, I would keep their money in Traditional IRA & not convert to Roth. Doing Roth conversions for them may not satisfy "best interest" annuity standards for you. You converting to a Roth would be causing them to pay taxes today, that they are not likely to owe later.

If they need to turn this $140k into income lifetime income, you may want to get some info for some guaranteed income riders for index annuities like you mention to match up with when they will be needing the guaranteed income.

Here is a quick & easy online tax calculator to see what I am talking about: IRS & State Tax Calculator | 2005 -- 2022 (irscalculators.com)

 

[scagnt83]

What Allen said, x10.

Look at a simple annuity sale. Maybe with a Rider if needed.

 

[RunnerDude]

Thanks for the input, They really don’t have enough money to successfully retire- and they will likely want more money per month than a Fixed Index Annuity will provide for them- at least in the first 5 to 10 years. I personally think a FIA with an income rider (i.e. looking at Athene Ascent Pro 10 Bonus) makes the most sense long term. I will suggest moving $100,000 into the FIA with an income rider- without the Roth conversion. This leaves them with $40,000 liquid assets.