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I am sure you are wondering why I, AppMan, would ever suggest a crazy idea
since our main business here at Financial Markets, Inc. is annuities.
Let me explain a little
further. 2010 will provide you, the agent, with a huge opportunity in the
annuity business. In 2005, our former President enacted into law “The Tax
Increase Prevention and Reconciliation Act of 2005" (TIPRA). You are
probably wondering what does this have to do with annuities, right?
This law eliminates the
income limit and allows ALL taxpayers to convert traditional IRAs and
other retirement plans to Roth IRAs beginning in 2010.
We all know that annuities can be a hard sell to clients. Did you know the
actual definition of an annuity is a sum of money, payable yearly, to
continue for a given number of years, for life or forever; an annual
allowance? Who wants to be required to take payments anyway? If you show
up at your prospects' doors and state you would like for them to take a
look at the annuity options you have to offer, they are immediately going
to have a negative outlook on what you are showing them. They do not want
to have to take payments at some point. They may want to keep investing
the fund because they do not need the income. Your prospect may not be
aware of all the different annuity investments available.
Let’s take a different approach; you may call them and state “I have a
very unique opportunity in 2010. I would like to set up a time to be able
to provide you with information on New Roth Conversion opportunities.”
Remember in 2010, the vehicle is not going to be the important selling
point. The opportunity for Roth Conversion is what will intrigue them to
want more information.
Why sell Roth Conversions?
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There is no minimum or
maximum amount that can be converted. You may make a “partial”
conversion of some of the assets in the account to help you fine-tune
your tax liability.
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The amount you convert in
2010 can be included as income in tax years 2011 and 2012. Example if
you convert $100,000 in 2010, $50,000 can be included as conversion
income in 2011 and $50,000 in 2012.
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Roth IRA owners are not
subject to required minimum distributions (RMDs), and distributions are
generally income tax-free. If the beneficiary is not your spouse, they
would be subject to RMDs, but the distributions could be stretched over
the beneficiary lifetime. Those distributions are generally income
tax-free.
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You may convert assets in
traditional IRAs and qualified plans, such as 401(k)s and
403(b)s. Conversion from an employer plan must meet the rollover
requirements for that type of plan.
Is the Roth IRA Conversion a
good option? The question is would you rather pay taxes now to avoid
paying taxes later when the tax rates could be higher?
Tax rates are at historic lows.
The top rate is 35% compared with rates as high as 94% in the distant
past. Since then the top rates have been as high as 91% in 1964, 70% in
1981 and 50% in 1986.
The first question to ask
the client is, would you like to see if you have an investment that would
qualify for a Roth Conversion?
The second question would be, do
you think the tax rate will increase or decrease over the next few years?
Since they are at an all time low, the answer most likely would be
increase. Now would be the best time to convert the traditional IRA to a
Roth IRA while the top bracket is at 35%. Once you have sold them on the
concept, then it would be time to sell them on the annuity.
The important thing to help your clients understand regarding an IRA to
Roth IRA conversion is they would be taking immediate taxation now in
return for getting an instrument for tax-free distributions later.
AppMan Riddle of the Day:
“The one who makes it, sells it. The one who buys it, never uses it. The
one who uses it never knows that he's using it. What is it?”
Click here to enter your answer. The first 20 agents that answer this
correctly will be put into a drawing for a $25.00 gift card.
Written by: AppMan©
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