Follow

Roth Conversions

What is a Roth IRA?

A Roth IRA is a type of tax-advantaged individual retirement account to which you can contribute after-tax dollars. The primary benefit of a Roth IRA is that your contributions and the earnings on those contributions can grow tax-free and be withdrawn tax-free after the age 59½ assuming the account has been open for at least five years.

 

Vestevo's Roth Conversion Calculator

One of the advantages of Vestevo over the competition is the ability to calculate and analyze Roth conversion scenarios and easily add the best permutation to your plan within the platform.

The calculator appears in Clients =>Plans=>Assets=>Roth Conversion Calculator:

 

roth_calc.gif

 

Populating and Calculating Options: 

Let's go through a scenario where we are converting some portion of a tax-deferred 401k amount into a tax-exempt Roth IRA. We say "portion" as the system allows users to choose percentage, total amount or a dollar amount to be converted:

 

roth_running.gif

*Does the Asset Account Type selected from the dropdown contain any nondeductible contributions? - If your asset contains nondeductible contributions, there is a dedicated optional field that can be enabled and populated by users.

 

*Select a Roth Account Type from the dropdown - We selected our existing Roth IRA account as the beneficiary for the conversion, however, the dropdown menu allows users to:

  1. Create a new Roth IRA account
  2. Create a new 401 account
  3. Choose an existing account from the list

 

Saving Changes (Roth scenario) to Your Plan:

As noted earlier, what makes Vestevo great tool for advisors is the ability to calculate and analyze Roth conversion scenarios and easily add the best permutation to your plan and recalculate within the platform:

 

save_roth_plan.gif

 

All the asset types that are part of Roth conversion rollover will be marked with the special icon as shown below:

 

converted.jpg

 

Analysis:

Once the conversion is complete, we will see the projected account balance through the owner's lifetime in the form of a Roth graph and scenario-based report. The graph will compare Current (e.g. 401K) Account vs. Converted (401K) Account vs. Roth Account for users to analyze various scenarios. The star icon* on the Roth graph indicates the retirement age:

 

mceclip0.png

Based on this graph, we are essentially looking at when we will retire and when our Roth Account will be greater than the 401k Account. After the conversion, our Roth Account keeps growing whereas the 401k starts to fall off.  

To analyze further, let's take a look at the break-down, numbers and scenarios:

mceclip1.png

The last 2 columns (Scenario 2) highlighted in grey are projections should you decide to convert assets into a Roth, whereas the first column represents the projections of current state of the account without the conversion.

 

By comparing the scenarios, we can conclude that our Roth conversion has returned almost 50% ROI.

  

Email or Download the Analysis:

If you would like to share the report with your client or colleague, you can do so by either "Email"ing it directly from the platform, or download as a ".pdf":

 

email_download.gif

Was this article helpful?
0 out of 0 found this helpful
Have more questions? Submit a request

Comments

Powered by Zendesk