The point here is that advisors will have to be more precise in projecting the tax on Roth conversions since they cannot be undone. Using a tax planning program can be very helpful here since it will take all these considerations into account. But as is the case with all software, it’s only as good as your input. Working with the clients’ CPAs or other tax advisors can also be worthwhile. Either way, the client still needs the tax impact explained ahead of time. That’s why it’s called “planning.”
Also, conversions should be done later in the year when many of these factors and income levels can be better known. For some strange reason, this planning is not being sufficiently addressed by most tax preparers, leaving the tax surprise to be disclosed the following year when nothing can be done about it. This is a high-value planning opportunity for financial advisors to act on now. It can also be a reason for them to win referrals.
Ed Slott, CPA, is a recognized retirement tax expert and author of many retirement focused books. He is conducting a complimentary webcast on 2019 Roth conversions on November 21. To register, click here. For more information about other offers, see Ed Slott’s 2-Day IRA Workshop and Ed Slott’s Elite IRA Advisor Group, and please visit www.IRAhelp.com.