Roth IRA Conversions

Roth IRAs have many benefits but are not right for everyone, and the decision to convert can be complicated. Being prepared to discuss clients’ questions will help strengthen relationships.

Evaluate Your Client Base

Take a holistic look at the total assets your clients have in their taxable accounts and all of the assets in their Traditional IRAs.

This is also an opportunity to ask clients if they have accounts in other locations that need to be consolidated for the overall Roth IRA conversion opportunity.

To evaluate the most appropriate clients for a Roth IRA conversion, review the Roth Potential Ratio grid below:

Assets Available in Taxable Accounts Assets in Traditional IRAs “Roth Potential Ratio” Potential for Conversion to a Roth IRA
$50,000 $100,000 0.5:1 Most unlikely
$100,000 $100,000 1:1 Less likely
$250,000 $500,000 0.5:1 Most unlikely
$500,000 $500,000 1:1 Less likely
$2,500,000 $500,000 5:1 Moderately likely
$1,000,000 $100,000 10:1 More likely
$5,000,000 $500,000 10:1 More likely

The decision to convert will be based on your clients’ access to outside funds in taxable accounts to pay the taxes owed on the conversion. One way to evaluate the appropriateness of a Roth IRA conversion is to look at the ratio between the taxable assets that could be used to pay conversion taxes and the value of all Traditional IRAs for a client.

Then create a written assessment using the Client Profile Sheet and call your top priority clients to set up appointments.

Educate Yourself and Prepare for Meetings

Learn more about the pros and cons of Roth IRA conversions, including the rules shaping this year’s opportunity.

Conduct Client Meetings

  • Use the Roth IRA conversion calculator during the meeting to orchestrate scenarios illustrating the pros and cons of converting a Traditional IRA to a Roth IRA.
  • Discuss these questions with clients when considering a Roth IRA conversion:
    • What are expectations about future tax rates?
    • Are there available resources for paying conversion taxes? Is there an interest in splitting the tax payment over two years?
    • Will clients need these assets in retirement or will the assets be left to heirs?
    • Has the value of the client’s IRA declined over the past few years?
    • Are clients close to retirement and do they wish to avoid taking Required Minimum Distributions (RMDs)?
  • Be sure to bring the proper forms and update the Client Profile Sheet after the meeting with notes and next steps. Follow up the next day via e-mail and plan to check in with your client in one week.

Follow-Up with Clients

Continue the conversation from your first client meeting with an expanded discussion about retirement planning.

Even if your client does not convert to a Roth IRA, use this opportunity to have a broader discussion about potential gaps in their retirement plan. The discussion can include topics such as risk tolerance, portfolio rebalancing, current financial status and obligations, as well as overall estate planning objectives.

Build a Business Resource Network

A key source of new clients is other professional referrals.

Typically, professionals across the spectrum can work together to cross-refer clients. In addition, when building a retirement business, also look for other resources, such as health care advocates, independent living coordinators and life coaches.

Promote Your Retirement Capabilities

  • Purchase a prospecting list for mailing or cold calling purposes. Be sure the list provider gives you individuals in your area who are not on the National Do Not Call Registry. Individuals should fit specific criteria; for example you might choose prospects ages 50 through 64, with an annual income of $100,000 and a net worth of $500,000.
  • Promote your retirement capabilities. Explain to prospective clients and your network how you have expanded your practice to include retirement planning and be prepared to showcase your new focus on retirement. Roth IRA conversion and the latest tax law changes are an ideal starting place.

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