Financial planners who engage in special needs planning (SNP) must be careful not to overlook legacy retirement plans (i.e., plans from previous employers) as possible sources of funding. While some research exists on the best practices for using Roth individual retirement account (IRA) conversions for general estate planning and wealth transfers, there is little guidance available on how to use Roth conversions of legacy retirement plans to fund SNP tools, such as special needs trusts (SNTs) and Achieving a Better Life Experience (ABLE or 529A) accounts. This article examines the strategy and reasoning for using Roth conversions of legacy retirement plans and suggests there are at least seven advantages of this strategy for clients with SNP issues: 1) access to funds at age 59½, rather than 70½; 2) no required minimum distribution (RMDs) in the lifetime of the account owner; 3) no future taxes; 4) reduced risk; 5) wealth transfer in perpetuity; 6) generally not subject to Medicaid recapture if properly structured (subject to certain conditions); and 7) no limitation on the amount of money that can be converted.
Lewis Hershey, PhD, MA, is professor of marketing and department head in the Department of Marketing, Business Law, and Supply Chain Management at Eastern Michigan University in Ypsilanti, Michigan. He was formerly a financial advisor with American Express and Prudential. A 2009 Paul Mills Scholar, he is a former chapter president of the Southeastern North Carolina Chapter of the Society of Financial Service Professionals and serves on the Society’s University Partners Program Committee.
Annemarie Kelly, JD, LLM, is a practicing attorney and assistant professor teaching health law, informatics, and policy within the College of Health and Human Services Department of Health Administration at Eastern Michigan University in Ypsilanti, Michigan. She formerly worked as a legal compliance officer and state administrative manager serving the Michigan Department of Health and Human Services in Lansing. She has served as counsel for both employers and individuals with disabilities across the Midwest in disability-related regulatory compliance and special needs planning matters. Ms. Kelly is licensed to practice law in Illinois, Michigan, and Iowa.