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© S E I 2 0 2 1 2 1 0 2 0 2 . 2 0 I A S ( 1 2 / 2 1 ) Other considerations when doing a Roth conversion Tax bracket management Conversions in the 10%, 12%, 22% and 24% brackets are low tax rates, historically speaking. Even so, the Roth conversion in the year of conversion can have potential side effects, such as an increased tax on Social Security income. It's best to run a tax projection to see how the numbers fall and zero in on an optimal amount. Doing a Roth conversion while married can be advantageous due to the wide tax brackets. A married couple filing jointly is in the 24% tax bracket up to $329,850 of taxable income. Married individuals filing joint returns and surviving spouses If taxable income is between: The tax due is: 0 – $19,900 10% of taxable income $19,901 – $ 81,050 $1,990 + 12% of the amount over $19,900 $81,051 – $172,750 $9,328 + 22% of the amount over $81,050 $172,751 – $329,850 $29,502 + 24% of the amount over $172,750 $329,851 – $418,850 $67,206 + 32% of the amount over $329,850 $418,851 – $628,300 $95,686 + 35% of the amount over $418,850 $628,301 $168,993.50 + 37 % of the amount over $628,300 Joint tax rates 2021 Source: KPE/IRS If the Roth conversion comes at a tax cost, it's optimal to use outside funds to pay the conversion tax. Also, a Roth conversion cannot be undone. Tactical considerations Pairing a Roth conversion with other tax attributes can help mitigate or eliminate the tax cost. It's important to have a good understanding of the taxpayer's tax situation to see if there is something to pair the Roth conversion with; for example, an increase in charitable contributions or business losses. Medicare IRMAA charges Income-related monthly adjustment amount (IRMAA) has a two-year look-back rule. IRMAA charges are based on income from two years ago; specifically modified adjusted gross income, which includes tax-exempt interest and untaxed foreign income. A Roth conversion in 2021 won't impact IRMAA charges until 2023. A planning strategy is to do Roth conversions before age 63, which can help avoid Medicare surcharges. Isolating basis in the IRA When doing Roth conversions, the pro rata rule applies, meaning each conversion includes a percentage of after-tax and pre-tax funds based on their percentage to the total IRA balance (which includes all traditional IRA accounts, including SEP and SIMPLE IRAs). Keep in mind, the taxpayer's IRAs are not commingled with the spouses. As an example: A taxpayer has $300K in their traditional IRA with a basis of $60K. For each dollar converted, the taxable portion would be 80 cents. The taxpayer's IRA came from an old employer's retirement plan, and the current employer is willing to accept the traditional (pre-tax) IRA monies as a rollover into its retirement plan. Accordingly, the taxpayer sends $240K to the retirement plan and then converts $60K to a Roth IRA tax-free. Conclusion Advice and counsel are critical for taxpayers to make informed decisions about Roth conversions. Your value proposition to clients and prospects only increases when you help them have the best lives possible with the money they have. DISCLOSURE Information provided by Independent Advisor Solutions by SEI, a strategic business unit of SEI Investments Company (SEI). The examples used are for illustrative purposes only. This information should not be relied upon by the reader as research, legal, tax or investment advice. This information is for educational purposes only, is current as of June 1, 2021, and is subject to change. Neither SEI nor its affiliates provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein: and (iii) you should seek advice based on your particular circumstances from an independent tax advisor. Investing involves risk, including possible loss of principal. For Financial Intermediary Use Only. Not for Public Distribution.

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