PLANADVISER - May/June 2020 - 11

Tax-Saving Opportunity
Investors might consider a Roth conversion now
FOR ANYONE who has been contemplating converting his retirement account to a Roth
account, this could be the time to act.
The reason is the simple fact that asset values are down substantially relative to
recent highs. That means the income tax paid on
the converted assets will also be substantially
lower. Once markets rebound, the assets will then
be in a pre-taxed account, meaning they can be
drawn tax-free down the road.
The common wisdom is that taxes in retirement
will be lower because of lower stated income.
" However, if you look at where we are today in
terms of where income taxes are, they are lower
than in many historical periods, " notes Susan
Czochara, practice lead of the retirement solutions
group at Northern Trust Asset Management.
" In that sense, there is actually a pretty good
chance the rates could rise. That fact supports the
importance of utilizing Roth in combination with
traditional accounts. It helps you prepare for the
unknown tax future and to have greater flexibility
for future withdrawals. "
She points to the value that tax diversification
" For many
people right
now, short-termfunding
needs
are taking
precedence,
and so it may
be a difficult
time to do the
conversion. "
can add to a retirement portfolio. " Especially for
those younger investors who are a long way from
retirement, it's very difficult to anticipate what the tax situation will be when they actually
retire, " she says.
An Issue Brief publication by Craig Copeland, senior research associate at the
Employee Benefit Research Institute (EBRI), offers some informative context for the Roth
conversion conversation. According to Copeland's analysis, there appears to be relatively
little sophistication in the marketplace when it comes to efficiently coordinating
the withdrawal of tax-deferred vs. pre-taxed assets among U.S. retirees.
" Traditional and Roth individual retirement accounts [IRAs] have different withdrawal
and taxation rules, " Copeland observes. " Traditional IRAs can receive deductible
or nondeductible contributions, but any gains accrued in the account are taxable
at withdrawal at the prevailing income tax rate. In addition, owners of traditional IRAs
are required to start making withdrawals once they reach a certain age, generally 72 for
those who marked their 70th birthday on July 1, 2019, or later. "
In contrast, Roth IRAs allow only nondeductible after-tax contributions, and withdrawals
are generally not subject to taxation. Further, owners of Roth IRAs are not
required to make withdrawals.
The EBRI numbers are somewhat disappointing, but, as Czochara observes, the significant
market volatility anticipated for the next several months or even years makes this
a great time for financial advisers to double down on their tax diversification messaging.
" When account values have dropped, as they have in the first quarter, you'll be paying
less in income tax on the amount that is converted than you would in normal times, " she
says. " That being said, this isn't an easy strategy for every retirement investor, because
there is income tax due when you do the Roth conversion. For many people right now,
short-term-funding needs are taking precedence, and so it may be a difficult time to
do the conversion. "
Advisers can therefore take this time to educate their clients about their future
conversion opportunity. -John Manganaro
ON THE MOVE
➜ SageView Advisory
Group has selected
Christopher Donnelly as
its chief advisory services
officer. He will oversee
initiatives including
adviser managed
accounts, the Sage 411
participant call center,
the USA Retirement
Savings Plan and participant-focused
solutions.
➜ The Wagner Law
Group has launched a
bankruptcy and restructuring
practice, providing
special counsel support
on employee benefits
matters to debtors, creditors,
ad hoc or official
creditor or equity committees,
trustees, Taft-Harley
plans, employee groups,
and retiree associations.
➜ Alight Solutions has
named Stephan Scholl
as CEO. Scholl says he will
expand the company's
efforts in the technology
sphere, as a global
provider of tech-enabled
benefits, payroll and
cloud solutions.
➜ Cohen & Buckmann,
P.C. has added Elizabeth
Drigotas as senior
counsel. She focuses on
executive-compensationand-benefits
plan
design and advising
financial services clients
about partnership
compensation.
planadviser.com May-June 2020 | 11
➜

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PLANADVISER - May/June 2020

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