Setting the Hook, Reeling In the Fish

“The window to make advantaged Roth IRA conversions closes in 2028” was the hook my friend Sherry got from the salesman at the free steak dinner. Scheduling an appointment with him was Sherry being reeled in.  Sherry asked if I would go with her to a meeting with the guy to discuss the proposal.

The  first thing I had to do was figure out what an “advantaged Roth conversion” even was. Feel free to correct me if I am wrong, but the best I could come up with was that he was talking about the expiring Senior Tax Deduction, which would have allowed her to convert an additional $6,000 before moving up to the  next tax bracket. That would indeed count as “advantaged” if Sherry was age 65, but she’s only 62. 

Next, I looked Mr. Dinner Seminar Guy up on the ole innerweb. No complaints had been filed. One instance of writing a bad check in 2013 was dismissed by the court. He recently left a position with an insurance company, and went out on his own. I was not impressed by his thin resume. I relayed this information to her, and she wisely decided to cancel her appointment with ‘steak dinner fella’. 

I then gathered some facts from Sherry, and in my opinion she will not benefit from Roth conversions for the following reasons. 

1. Sherry’s marginal tax rate now and in the future will not exceed 12%
2. Roth conversions to the top of the 12% bracket between now and her 75th birthday will carry a cumulative tax liability of approximately $56000. (Sherry currently receives Social Security; the conversions would triple the amount of SS that is taxable).
3. She will begin RMDs at her age 75. Her tax liability (not adjusted for inflation) at age 75, without Roth conversions, will be approximately $1500/year with the senior deduction, $2800/year if the deduction expires. 

As you can see, it would take many years after RMDs began to recoup taxes paid on the conversions. 

I also suggested that she bring the subject up with her current advisor, who is well respected in the local financial community, and that I would be happy to sit in on the meeting (as her friend and tax preparer). I am pretty sure that her current advisor would have broached the subject of Roth conversions if he felt it had merit.

Perhaps ‘seminar boy’ would have come to the same conclusion regarding conversions. If so, he still would have a shot at snatching Sherry’s business from the current advisor, who is likely the best man for the job. The average client does not have the knowledge to evaluate these things and can easily fall prey to a smooth talking salesperson. I know it’s been written about before, but I think it’s worth repeating that BrokerCheck by FINRA is a fine way  to check on an advisor. You can at least determine how an advisor is licensed, their experience, and if complaints have been filed.