Here in Florida, we are lucky to have the grocery store chain, Publix. While not Wegmans (yes, I am spoiled - spending 30 plus years in Upstate NY), every week I look for sale items or, sometimes the treasured BOGO sales. (Buy One/Get On) Recently, there was a sale that looked too good to be true. Dunkin’ Keurig pods typically $9 per box, were on sale BOGO for $6. Here is how I saw this:
For every box I buy- I save $9 ($3/ box + $6 BOGO). I bought six boxes because it was the most, I
could comfortably carry without coming off as a loon, and I went home pleased that I secured a deal – saving of almost $30.

While it is currently Black Friday or Cyber Sales week for the consumer; your clients’ future tax liability will not come with sale flyers or BOGO tags, but it will fluctuate throughout their life based on the family’s taxable income. Typically, the best “sale” during retirement is the clients’ time gap between their retirement date and whenever they begin to claim Social Security. During this period, with your guidance, they should be living off cash or taxable investment accounts if possible. This may keep their taxable income lower and give them the opportunity to move money or convert from pre-tax accounts (401ks/Traditional IRAs) into Roth IRAs. You have prudently advised them that they will pay the taxes in the year(s) they convert, at the lower current rate, and avoid a higher rate when their Social Security and required minimum distributions (RMDs) commence. Calculating whether this makes sense for them would typically take a comparison between their current marginal tax rate and what their marginal tax rate may be in the future. This amount is called their “Gap” or ‘’Tax -Gap.” There are plenty of software programs available allowing you to present and demonstrate the calculations for your clients.

A Quick Example: If they are in the 12% marginal rate bracket today and expect to be in the 24%
marginal rate bracket tomorrow, every dollar converted to a Roth IRA saves them an estimated 12 cents. Ah-ha the catch: There usually will be a limited amount you can move before you jump from
12% to 22%; however, converting even $5,000 or $10,000 can make a difference.

The Bottom Line
Conversions of Qualified Plan or Traditional IRA assets are personal decisions. However, one that
your clients need not make alone. Recall many of your clients may be DIY’ers (Do it Yourself) but
that does not mean they have to do it alone.

• As attentive Advisors and Planners, you can/should run this projection annually for your clients. 
  • Providing an estimate or ‘’What If’ scenario to assist in their decision.
    

• This is not an ‘’all or nothing’ strategy. 
  • Several tactical annual conversions can make a substantial difference in improving and managing the tax-planning.

• There may be years where the gap has been filled by other sources and a conversion may not be the right planning move.
  • No worries – the inheritance or additional windfall can be put to work with your assistance as well.

As noted previously, everyone gets a little excited about a ‘’sale’ or the possibility of ‘’getting a deal’ and saving money. Just make sure your guidance and advice are ones that your clients clearly understand and can execute completely. Nobody wants to leave a deal on the table, and certainly, no one wants to pay more taxes than they should.

Note: You are not providing legal or tax advice. The information herein is general in nature and
should not be considered legal or tax advice. Have your client consult an attorney or tax professional regarding their specific situation.

Copyright© 2023 Cannon Financial Institute - All Rights Reserved

Subscribe to Cannon Insights at http://www.cannonfinancial.com/newsletter/subscribe