Planners of every persuasion are always looking for the new and interesting conversation to have with their best clients and strategic partners. This is called business development, and the differentiation point between the consultant and the salesperson is this: the consultant wants the conversation that fits the situation to lead to business development as opposed to the conversation built around the product. As a consultant, it is so much more interesting to think about what is relevant to people right now and develop conversations around those tangible issues. This is what fuels my business passion.
That said, what is the No. 1 issue on the minds of the people I speak with? It is taxes, and the No. 2 issue is longevity of income. My clients are no longer in their 30s and 40s. They are now in their 50s, 60s and even 70s, and their issues right now do not have to do with accumulating money, but how to keep what they have, turn it into cash they can use and make that last a lifetime. There are different ways to approach these two issues and my approach is to tackle them in the same conversation. The fact is that when you eliminate taxes due on the income you receive, this leads to greater use of money—especially over an extended lifetime and with a fixed income amount. So, the first conversation starter (of utmost importance to my clients) is how to re-characterize a traditional IRA into a Roth IRA, turning fully taxable income into lifetime tax-free income and then getting right into the conversation about how to produce lifetime income. Imagine having one conversation that addresses both of those issues at the same time.
In order to re-characterize a traditional IRA, one must recognize the tax due the IRS in the year of the conversion. So if you have a $500,000 IRA that you want to make into a Roth, the $500,000 would be added to your current income and the combined total would be taxed at your ordinary income tax rate. This is usually a deterrent to re-characterizing a traditional IRA, because you are paying the tax on higher income even though you are not recognizing that income as take-home pay. One way to address the tax is to mitigate it, and this is done by introducing them to a strategy that can eliminate re-characterization taxes, create lifetime income from the Roth IRA and create a second income stream called a gift annuity. This is all done with a single contribution to a very special charity whose mission statement is to feed the hungry, house the poor and help elevate those in need to self-sufficiency. This conversation, which originated around taxes, has now broadened into a multi-faceted strategy with several goals:
- To eliminate the tax on lifetime income using a tax deduction to create a Roth IRA.
- To derive a charitable gift from a secondary income stream called a charitable gift annuity.
- To re-characterize a traditional IRA to a Roth.
This is an extremely powerful plan for clients who fit this fact pattern, and there are many other fact patterns that this particular strategy applies to. The point is, as consultants, we need to have relevant, interesting conversations that fit the here and now of our clients. We have to be aware of insurance products, taxes and the best companies so that we can take a strategy like this from soup to nuts and help our clients achieve lifetime goals.