Move aimed at helping to open up a dialogue between high-income investors and their advisers
Putnam Investments today said it is expanding the availability of its Roth IRA Conversion Evaluator, making it accessible to financial advisers' clients.
Previously, the online tool was available only to advisers.
The Internet tool asks investors for information on taxable, tax-deferred and tax-free assets, and weighs in other factors, such as the client's age and legacy plans, to determine just how beneficial a conversion to a Roth individual retirement account would be. The evaluator also gives clients an idea of what would be an optimal amount for a Roth conversion.
Making the tool available to individuals is intended to open up a dialogue between high-income investors and their advisers, noted William Cass, senior vice president and retirement products marketing manager.
“It may not provide a simple yes or no, but based on how clients answer the questions, it gives them a range as to whether the conversion would provide strong or only few benefits,” he said.
Taxpayers earning more than $100,000 are now able to convert to Roth IRAs for the first time. Though withdrawals from the Roth IRA are tax-free, investors have to pay an income tax on the amount that's being converted.
Naturally, the conversion doesn't work for all investors: It probably won't work for those who are certain that they'll be in a lower tax bracket in the future and who don't intend to leave assets to their heirs.
However, even in situations where the Roth might appear to be a good idea, clients will benefit by talking to an adviser about their circumstances, Mr. Cass said. For example, a client could be a few years away from retirement and could appear to be a good candidate for a Roth IRA conversion. But perhaps that investor has a college-bound child who's applying for financial aid. In that situation, extra income from the conversion could keep that child from receiving financial aid, Mr. Cass explained.
In other situations, clients who don't want to get slammed with a huge tax bill might consider making the conversion on an incremental basis. “I'm not sure how well general investors can prognosticate future tax brackets looking out over 15 or 20 years, so it might make sense to have some exposure to the Roth in case you're wrong,” Mr. Cass added.
