One strategy that may make sense for many of your clients in light of the SECURE Act is a Roth conversion. In addition to the overall low tax rate environment created by the tax reform legislation passed at the end of 2017, several aspects of the Act lend themselves well to Roth conversions.
Delayed Required Minimum Distributions (RMDs)
The SECURE Act delayed the commencement of RMDs for those who reached age 70½ on or after January 1, 2020. For some of your clients, this could mean as much as two extra years until they have to begin their RMDs from their IRAs or other retirement accounts. Those who won’t need the funds from their RMDs might consider doing a Roth conversion each year to reduce the account balance subject to RMDs when they reach age 72.
Depending upon the client’s situation, the amount of the conversion can be managed each year to keep them in their current tax bracket. Their anticipated tax bracket in retirement versus their current bracket is a key planning consideration. You will want to be sure that your client can pay any taxes with money held outside of the traditional IRA or other retirement account.
The money converted to a Roth provides a level of tax diversification in retirement as a hedge against any future changes in the tax laws or other rules.
Changes to Inherited IRA Distribution Rules