The Roth Revolution

Bruce Beaty

By: Bruce Beaty, SVP - Business Consultant at Asset Marketing Systems

Originally Written: April 1st, 2019
Updated: April 25th, 2024

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 [ $7000 limit under 50, $8,000 limit over 50] , are limited based on earned income and include a phase-out range depending on one’s tax status:

  • Single $146,000-$161,000
  • Joint $230,000-$240,000

*2024 Contribution limits and phase out ranges 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: 2024 standard deduction (65+ joint) = $30,300

Income Fed Tax: Taxable:
Social Security 30,000 x 85% 25,500
IRA & Other 166,100 166,100
Total 196,100 191,600
  Standard Deduction -30,300
  Net Taxable 161,300
(10% bracket - Max 19,400) 23,200 x10% 2,320
(12% bracket - Max 94,300) 71,100 x12% 8,532
(22% bracket - Max 201,050) 70,300 x22% 14,470
Total   25,592=15.86%

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 under 16% income tax.

The Bottom Line?

With the premium bonus options available some up to 14% (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.

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