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By Far, the best Roth Conversion Strategy.
Using a staggered Roth conversion process followed by a 7 year crediting (that is fully credited Roth at the conclusion), this strategy dramatically minimizes the tax burden while eliminating market risk and advisor fees.
Bullet point summary appears below.
Summary of the Strategy
- Roth Conversions, generally
- Pre-tax money in a 401k, IRA, etc. has income tax upon future withdrawals, and eventually forced withdrawals called Required Minimum Distributions (RMDs).
- This money can be Roth converted into a Roth IRA, where future growth and withdrawals are untaxed and there is no RMD schedule. The money is “free.”
- But Roth conversions trigger additional income taxes in the year they are executed, so there is preference to "spread out" the conversion over several years, to avoid exposure to higher income tax brackets.
- At the same time, there is a five (5) year lockup of newly Roth converted money (see: IRS "ordering rules" - original contributions are immediately available, but gains are now restricted for 5 years).
- And thus, the "sweet spot" is often conversions over 2-3 years. Not too much tax, not too much waiting.
- How do we execute this in the most efficient manner? We eliminate:
- Market risk
- Advisor fees
- Any additional taxes
- Fixed Index Annuities (generally)
- Capture market gains tied to a stock market index with an upper limit (cap) or participation rate in that index.
- 100% downside protection - no market risk.
- No advisor fees.
- 3, 5, 7, 10, or 14 year surrender periods (cannot withdraw the entire balance during this time)
- Generally, ability to withdraw 10% per year along the way without penalty.
- No tax benefit normally--typically, if pre-tax 401k/IRA money goes in to an FIA, it maintains the same status and the withdrawal is subject to income tax.
- Athene AccuMax 7
- 7-Year Point-to-Point Index Strategy (S&P 500)
- 100% participation (as of 5/2024) - this is locked in for the duration of your contract.
- The client simply rides the S&P for 7 years, and then gets 100 percent of what it did.
- 100% downside protection
- No market risk, rate renewal risk, or fees
- Some clients can’t stomach a lack of “year to year” returns, but for those who can, it works great
- No rate renewal risk since the crediting period is the same as the length of the contract.
- They also have other 1 year crediting options with PAR rates that are locked for the term as well
- Normally I am suspicious of Athene illustrations but this design removes that concern
- Should the client die during the 7 year crediting, Athene would credit what the index had done up to the owner's death.
- 100% downside protection if the market takes a nose dive.
- Partial Roth conversions during the 7 years:
- Athene allows partial Roth conversions during the 7 years of the contract. Both the pre-tax and Roth balances remain housed within the same annuity contract as two subaccounts.
- Say $300k goes in, over the next seven years the client could pay for partial Roth conversions from other sources ("out of pocket")
- Spread out the obligation on the $300k (or whatever premium is) over several years
- Then, only at the end of 7 years, the account is credited gains, which is all Roth
- Say you get a $200k+ crediting – this is now $500k Roth account
- 7-Year Point-to-Point Index Strategy (S&P 500)
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Frequently Asked Questions
This is now a Roth IRA. You can:
- Bring this back to the market as a Roth IRA you manage, or use an advisor to manage
- Pursue private market strategies if you are an Accredited Investor.
- Use another Fixed Index Annuity (FIA) if you want continued "safe growth:"
- No market risk - 100% principal protection
- No advisor fees
- Generally, a cap (upper limit) or participation rate in a stock market index
- 3, 5, 7, 10, or 14 year surrender periods
- Ability to withdraw 10% per year penalty-free, or RMDs (whichever greater).
- Various products and carriers are available depending on your objectives here.
- Use guaranteed lifetime income annuities to create income streams in retirement you can never outlive (and which would now be tax-free).
- Go to your local casino and bet it all on black.
- Or a combination.
For the clients who have worked with us using this strategy, we encouraged them to involve their tax professional and have them approve the strategy. This remains our preferred approach.
This is a clever strategy, but the "bonus" gets added to the amount you need pay to Roth convert, so it ends up being a bit more messy.
Usually this concerns variable annuities, which have market risk and indeed, rather high fees. In this case, your annuity would have NO fees. Not from an advisor, not from the annuity company.
Much of the criticism of annuities has been engineered by advisors who want to keep all your money under their Assets Under Management (AUM) fee for recurring revenue. Unless it's a variable product, in almost all other cases if you pursue a solution in the form of an annuity, the advisors loses the ability to "wrap a fee" on this portion of your portfolio.
The annuity companies pay a commission, usually 4-7% of premium submitted, to the advisor or insurance agent for sending a client their way.
The commission received does not come from your premium / balance. The annuity company pays advisors and insurance agents separately, from their general fund.
What you are asking is "how do annuity companies make money." The annuity company:
- Takes your premium (investment), and the premium of tens of thousands of other policy holders, and they bulk purchase extremely safe assets, but at an institutional level for a better yield that you could receive on your own.
- They book profits, pay themselves and advisors / producers who send them the business.
- What remains is an "options budget." They then buy options around the index you have chosen for your crediting strategy, never actually investing in the index directly.
Generally not. Most annuity products are advisor sold. Meaning, you have to book an appointment, and then I will help pursue the annuity on your behalf.
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After 7 years in the financial services industry, I launched my own Registered Investment Advisory, Taub Investment Planning Services.
I did this to help investors, executives, business owners, and other successful individuals accumulating wealth during their working life, and also the 10,000 Americans approaching retirement each day.
The majority of successful business owners, entrepreneurs and executives have not been adequately explained financial structures that could shield a significant portion of their earnings from unnecessary taxes and creditors.
The majority of retirees or near-retirees have their nest egg in a workplace retirement plan, plus equity in their home (and maybe a few other investments here or there), with little guidance on how to maximize their savings or make their money last.
I genuinely enjoy surprising people when they realize the level of service they can receive. You deserve someone who is punctual and responsive, who is empathetic, and who can act impartially and professionally. I encourage you to experience this for yourself.
Matthew Taub, JD
Investment Advisor Representative
Taub Investment Planning Services LLC
Registered Investment Advisor
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