Edward Jones

[RunnerDude]

Does anyone know if Edward Jones sells FIA's or offers Roth conversions to their clients?

 

[scagnt83]

Does anyone know if Edward Jones sells FIA's or offers Roth conversions to their clients?

ROTH Conversions, yes.
(This is just a tax concept that any and every retirement advisor is going to be capable of doing. It does not take a specific product to accomplish.)

Not only do they do them, but its company procedure for them to include the clients Tax Professional in the decision making process. Which is what any other competent advisor would do in that situation.


FIAs, no. (unless something changed in the past 2 years)
However, they offer VAs with Riders that do exactly what FIA Riders do.

 

[RunnerDude]

Thanks. Looking for an avenue to work with a client who has $1million invested with Edward Jones (70% qualified IRA's; 30% stocks/bonds).

 

[scagnt83]

Thanks. Looking for an avenue to work with a client who has $1million invested with Edward Jones (70% qualified IRA's; 30% stocks/bonds).

Based on the other info you gave in the previous thread (sorry things got off track there), this is what I would suggest (I've sold annuities for 15 years now):

Go after the IRA funds. Forget the NQ funds. This is because:
1. A NQ investment account is the easiest place for RMD withdrawals to go.
2. Annuities are more effective with Qualified funds vs. NQ. Its their strong suit.
3. She still maintains her existing relationship and wont have to "fire" her current advisor. Having to fire a longtime advisor can be an emotional thing that can be an issue for many seniors.


Forget the ROTH conversion unless you stretch it out over a 10+ year period. It would be malpractice to recommend anything shorter than that. The total net numbers will not work out in your favor. And the EJ advisor will tear your recommendation apart.... they have access to CPAs they can bring in to give direct tax advice as well... and no CPA is going to sign on to a conversion that needlessly puts her in a higher tax bracket, because it will not create a larger amount for her or her heirs.

And the whole ROTH conversion idea essentially guarantees EJ retains the funds. They can easily do a 10+ year conversion strategy with her existing setup. She just seamlessly moves the IRA funds over the her NQ account. So if she really wants to do that, EJ is by far the better choice vs. the Allianz annuity conversion over 4 years. So pushing the conversion is just guaranteeing you will not get this business. I would bet my next commission check on it.


You dont need the ROTH conversion to make a sale. She is the perfect prospect for an annuity. An annuity with Rider will not just cover her RMDs, it will maximize the income from that account. She gets to use what she needs for living expenses, the rest goes into the NQ account to pass to her heirs. Make it a Rider that covers LTC needs, and its an even bigger benefit.

If she is still insurable, then you could look at a GUL funded by part of the Income Rider. This would by far be the best way to maximize any inheritance.

FIA with Rider for the IRA funds. Excess Rider Income goes into NQ account that stays with EJ. You provide guarantees, safety, simplicity, LTC protection, & cut her fees by 50%. Easy, simple, effective.

(if you are dead set on pitching the conversion, at least do it over 8 years and use 2 of the allianz annuity contracts to do it. but im not sure that 8 years will keep her in the same tax bracket.)

 

[RunnerDude]

Thanks for your response. That helps me understand EJ a little better. It does make sense to keep EJ in the equation as much as possible to avoid putting the client in a position of having to choose- and I'm pretty sure I would lose that fight anyway.

My goal with the Roth Conversion idea was to prevent her from having to pay RMD's starting at 72 (only four more years) at all- especially in a potentially higher tax environment (who knows the future- but everything I read points to higher future taxes). I do see your point about placing her in a higher tax bracket during the conversion period, but would it not make sense to pay lower taxes now, avoid RMD's at all and keep her money growing tax-free inside the annuity for her heirs?

However, I do like the GUL idea - since it provides a way to pass her money tax-free to her heirs. I do believe she is insurable. She would also have the ability to funnel the RMD money back into EJ if she chose to do so. - which may help me gain her as a client.

 

[Allen Trent]

My goal with the Roth Conversion idea was to prevent her from having to pay RMD's starting at 72 (only four more years) at all- especially in a potentially higher tax environment (who knows the future- but everything I read points to higher future taxes). I do see your point about placing her in a higher tax bracket during the conversion period, but would it not make sense to pay lower taxes now, avoid RMD's at all and keep her money growing tax-free inside the annuity for her heirs

Please don't take this wrong, but I don't think you understand RMDs or taxes. You don't pay RMDs. All RMDs are is being forced to take a little bit of money out each year. You forcing her into a Roth conversion would be the same as making her take massive RMDs now instead of tiny RMDs later. Plus, based on your info, this client is currently in the 0% tax bracket.

Everything being proposed on higher taxes is proposed on high income individuals, high net worth, corporations & higher estate taxes, none of which she currently is.

I don't know your overall experience, but I sincerely think you may be barking up the wrong tree on this concept with this client. At least in terms of thinking you must have this be a Roth conversion & have it happen in just a 4 or 5 year period.

Do you have a CPA you respect? If so, before they get busy with 2021 tax returns, run this idea by them with the clients income & SS info & then ask him/her to run the scenarios based on Roth conversion of 1/4 of the money or at 25k per year.

 

[scagnt83]

My goal with the Roth Conversion idea was to prevent her from having to pay RMD's starting at 72 (only four more years) at all- especially in a potentially higher tax environment (who knows the future- but everything I read points to higher future taxes). I do see your point about placing her in a higher tax bracket during the conversion period, but would it not make sense to pay lower taxes now, avoid RMD's at all and keep her money growing tax-free inside the annuity for her heirs?

If you include inflation, taxes on her income level have not increased in 100 years.

Proposed tax increases, even the most radical from someone like Bernie, do not raise taxes on her income level. Zero economists are predicting higher taxes on the lowest income brackets. It is a moot point for her.

She currently has an effective tax rate of 4% !!!!

Her initial RMDs will be around $24k per year. She is already taking out $12k/y. So its only a $12k/y increase in her income, putting her at $36k/y total in taxable income. (half of her SS is excluded at her current income level)

So with RMDs, her effective rate is only 6.7%.

If you increased her income to $124k ($24k in SS + $100k Conversion), her effective rate jumps to 16.5%.

That is a 10% immediate loss by doing the conversion. Her taxes will never increase by 10% to make up that loss. In 100 years they have not increased by even 5%, much less double that.

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Consider the actual taxes paid by the RMDs. A $24k RMD "payment" is not the taxes owed. She pays the $24k to herself, into her own bank account ... and pays the IRS 6.7% of that.

That is just $1,600 in taxes.

A $1,600 loss out of $700,000.

A $1,600 loss out of $35,000 in annual gains assuming just a 5% return.

Even in her 90s, when the RMD would be around $58k assuming the same account balance.... that is only $5k in taxes out of $35k in earnings.

RMDs are not going to deplete her IRA, much less her overall net worth.

Here is a good tax calculator that shows the actual effective rate. Federal Income Tax Calculator - NerdWallet

Remember that only half of her SS benefits are taxable at her current income bracket. And she can stay in her current bracket even with RMDs for a very long while. (most likely forever since they do increase income levels with inflation)

And you have to include an extra $100/m in Medicare Premiums she would be paying during the conversion years.

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If it was a conversion that kept her in the same tax bracket, and very slowly converted it all to a non-taxable pot of money for her heirs... it could make sense, especially if her heirs are in very high tax brackets.

But you dont have the products to do that effectively without laddering multiple different annuity contracts... assuming you want to sell a product with an income rider. And unfortunately for you, EJ already has her in a setup that is perfect for a long drawn out conversion over 20 years.

So the issue you are going to run into, if she likes the idea of conversion, EJ can provide a much more beneficial solution for her that creates a 0% tax loss... compared to a 10% loss from your solution. Which would you personally choose for your money?

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Going down the conversion road most likely will just solidify her relationship with EJ, because they will win that battle if half competent.

The good news is that you have her attention. Do a rough analyasis on paper and show her that the conversion "doesnt seem to make sense after running the numbers" .... "but the annuity makes perfect sense for part of the IRA funds". You need to pivot away now that you have her attention.

 

[Allen Trent]

If you increased her income to $124k ($24k in SS + $100k Conversion), her effective rate jumps to 16.5%.

That is a 10% immediate loss by doing the conversion.

It is actually much worse than that I believe. Those last dollars of $125k will cause those dollars to be taxed at much higher than 16% & really cause about $140-$145k to be taxed based on 85% of SS being added to taxable amount. Your 16% estimate is on her entire income which currently most isnt taxed at all.

At 24k of SS & 12k of IRA income, she pays no federal income tax as her standard deduction I believe of $14.2K (age 65+ single) wipes it away & none of SS is taxable at that level. doing 124k of Roth conversion shows me should would jump to having $130k of taxable income because 20k of SS would be taxable for total of $144k - $14k standard deduction. she would owe $23k in federal taxes & in my mind going from $0 taxed on her current $36k income to being taxed $23k on the added 112k of income is 21% federal tax, then add state income tax & likely Medicare premium penalties.

if she merely bumps distributions from IRA to $25k per year now going forward, only $1800 per year in federal tax.

Not saying you are wrong, just saying it is much higher than a 16% federal tax in reality in my mind

By, the way, I like this simple tax calculator someone designed. Only item I didnt love was it didnt have a choice for over age 65, but they added it after I suggested it.
IRS & State Tax Calculator | 2005 -- 2021 (irscalculators.com)

 

[RunnerDude]

You are correct, my knowledge base on these topics is limited. I always benefit from hearing opinions from other agents with experience- so this is very helpful. I have done a fair amount of reading and research on taxes and the benefits of Roth conversions - although I have a lot more to learn.

According to what I have read, Roth converted accounts (including all future earnings) are exempt from mandated RMD's.(although their heirs will be required to take RMD's). I know the Roth conversion will put her into a higher tax bracket (temporarily) - but it may pay off in the future- depending on what you believe about future fiscal policy and handling of the national debt. Right now she is in the 0% tax bracket, and the conversion will put her in the 22% or 24% brackets- depending on how long the conversion is. I do have a CPA that can help with tax questions, and I do plan to consult him.

I would personally do the Roth conversion if it was my money- simply because I would not have to take RMD's, all future earnings will be tax-free (eliminating the issues regarding future taxes altogether), all money can remain in the converted account (and continue to gain tax-free profits), and can be passed on the my heirs tax-free. Under 2021 rules, RMD's will effectively deplete her retirement account by 50% in 10 years- which will place her in a higher tax bracket anyway (over her entire life- not just for the period of the conversion). After the conversion, her tax bracket goes back down to 0%, and she will likely never pay taxes again. The Roth annuity would also provide excellent LTC coverage- and guaranteed income if I chose to take it.

 

[scagnt83]

However, I do like the GUL idea - since it provides a way to pass her money tax-free to her heirs. I do believe she is insurable. She would also have the ability to funnel the RMD money back into EJ if she chose to do so. - which may help me gain her as a client.

This is what will really set you apart if her goal is to maximize inheritance.

Instead of eliminating RMDs, show her how to put them to use in the most efficient way possible.