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Is a Roth IRA Right for Your Clients?

June 2020 
by Michael Lynch

If your clients are well diversified from an investment perspective, shouldn’t they also be diversified from a tax perspective?

A Roth IRA is an account in which contributions are funded with after-tax dollars and are not tax deductible, vs. a traditional IRA where contributions may be tax-deductible in the year they are made. Though a Roth IRA may not be right for every client, it is a topic financial advisors should discuss with every client. With the recent market turmoil, now is the ideal time to gauge your clients’ thoughts on tax rates in the future.

As you develop your strategy to discuss a Roth IRA with your clients, remember the 3 Cs:

 

1. Consolidate.

It’s not uncommon for one client to have three-to-four IRA accounts. If this is the case for any of your clients, ask them to provide you with a list of their accounts, so that you can familiarize yourself with the plan differences and the contribution limitations for each. 

Once you have this information aligned, offer to help make their lives easier by consolidating them into one place. This means location consolidation, not account consolidation. Multiple accounts held at one institution are fine and often make sense, but having accounts in three or four different places may cause confusion. Make the benefits of centralizing these accounts clear to your clients, stressing the importance of simplicity and organization by having all your funds reside in one place.

 

2. Convert.

Conversion of an existing IRA to a Roth IRA might make sense for a number of your clients. What might not make sense is converting the whole account value, and your clients might have concerns about the large tax bill they could receive due to this conversion. 

Start by informing your clients on the conversion process. Ask them how much they can afford to convert, and reassure them that they do not have to convert the full account amount. This may be a great opportunity to include their tax professional in the conversation as well. Talk them through their options and have them think about a portion that makes sense to convert, given their situations.

 

3. Contribute.

Many clients are not funding an IRA today, they make too much to fund a Roth IRA, or they may not have anything currently to convert. But we all have to start somewhere, and it is up to you, the financial advisor, to lead your clients in the right direction. Walk your clients through their contribution options. First, remind your clients that the 2019 tax filing deadline was pushed from April to July 15th, and it’s not late to make a non-deductible IRA contribution. Next, work with them to see if it makes sense to make a non-deductible IRA 2020 contribution now as well. Once your clients have an IRA that is funded, you can discuss converting to a Roth IRA. 

An option to consider for your married clients is to suggest they discuss with their spouses whether the spouse should also open and fund accounts. Oftentimes advisors will discuss the idea of contributing to an IRA with clients, but neglect to ask them to think about their spouses doing the same. Remind them that to have a successful retirement they need to do all they can do, and if they are making contributions to an account, why not double that by having their spouses fund one as well? Once those accounts are established, you can begin this process with them, and discuss converting their IRA accounts to Roth IRA accounts. Help your clients and their families properly invest so they can start saving today for their successes tomorrow.

 

The Roth IRA isn’t right for everyone, but for the right client in the right situation, it may just make sense. Clients look to their advisors as educators. Educate them today on the pros and cons of a Roth IRA, before someone else does.

 

Investing involves risk, including the possible loss of principal.

This information should not be considered investment advice or a recommendation to buy/sell any security. In addition, it does not take into account the specific investment objectives, tax, and financial condition of any specific person. Hartford Funds does not provide tax or legal advice. Clients should consult with their own tax advisor to determine how this information applies to them.

This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. This material and/or its contents are current at the time of writing and are subject to change without notice. 

Michael Lynch
Managing Director, Applied Insights

Michael Lynch is a Managing Director of Applied Insights for Hartford Funds. In his current role, Mike is responsible for engaging and educating both financial advisors and their clients about current and emerging opportunities in the financial-services marketplace. These opportunities range from tactical strategies in areas such as retirement-income planning, investment planning, and charitable planning, to anticipating and preparing for long-term demographic and lifestyle changes.

Mike joined the organization in 1993 as an annuity client service specialist. In 1997, he joined the Advanced Product Marketing department, where he developed an extensive knowledge of estate and retirement planning. In 2004, Mike became a regional sales director. In 2006, he became Vice President and national director of The Hartford’s Retirement and Wealth Consulting Group, which provided thought leadership and financial education focused on retirement and small-business planning. In 2012, he joined The Hartford Mutual Funds.

Mike earned his bachelor’s degree in business administration from Eastern Connecticut State University. Mike is a registered representative of Hartford Funds Distributors. He is FINRA Series 6, 63, and 26 registered and holds a life, health and variable insurance license. He currently lives in Charlotte, North Carolina, with his wife, Kim, and their children, Josh, and Em.

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Michael Lynch is a registered representative of Hartford Funds Distributors, LLC.


Check the background of this firm/individual on FINRA's BrokerCheck.

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