The Roth IRA conversion calculator can be a useful tool when considering the decision to do a Roth IRA conversion since Roth IRA conversions result in a taxable event. The calculator is intended to show a hypothetical income tax comparison of a Traditional IRA fixed index annuity (FIA) owner receiving annual Required Minimum Distribution (RMD) payments and/or lifetime withdrawals from the Traditional IRA, compared to the following two options:

• Immediately at issue of the Traditional IRA contract, the owner converts the full amount in the Traditional IRA to a Roth IRA; or
• The Traditional IRA owner performs partial conversions to a Roth IRA over a series of years.

The output will show a side-by-side comparison of the federal income tax implications of these transactions. The calculator does not take state income taxes into account.

Under the “Detailed payment and tax schedule by year” drop-down, there are three columns that show values for a Traditional IRA, a Roth IRA that was converted with a single conversion, and a Roth IRA that was converted with a series of Partial Roth Conversions. There are three buttons: Net (payments minus taxes), Payments, and Taxes. The Payments button will make the table show RMDs (if applicable) and lifetime withdrawals each year and the Taxes button will make the table show federal taxes on the RMD, lifetime withdrawal, and/or conversion for each year. The Net (payment-taxes) button shows the RMD or lifetime withdrawal minus taxes on the RMD, lifetime withdrawal, and/or conversion for each year. The net will be negative for Roth conversions in the year of the conversion(s) since there is no payment that year.

In the Summary section, death benefit (if applicable) is included in the payout and tax calculations. The death benefit is assumed to be paid out as a lump sum of Accumulated Value and taxed to the beneficiary at the same rate as lifetime withdrawals are taxed to the owner.

Below are the input restrictions for this calculator as well as definitions for key terms.

• Definitions
  • General Definitions
    • Traditional IRA – A Traditional IRA is a retirement FIA that is generally funded by contributions that are income tax deductible. Generally, eligibility for deductible contributions is based on income limits. This means that income taxes on deductible contributions and earnings must be paid when the money is withdrawn (e.g., lifetime withdrawals, RMDs, and death benefits).
    • Roth IRA – A Roth IRA is as a type of retirement FIA in which contributions are made on an after-tax basis, but no income taxes are paid on the contributions or earnings when money is withdrawn as qualified distributions (e.g., lifetime withdrawals and death benefits that meet the conditions to be qualified distributions). Note that no RMDs are required from a Roth IRA for the owner, although certain RMD rules do apply to Roth IRA beneficiaries. A 10% federal additional tax may apply if funds from the Roth IRA are withdrawn within five years of a Roth IRA conversion or if the money is withdrawn prior to age 59.5.
    • Roth IRA conversion – A Roth IRA conversion is when funds are moved from a Traditional IRA into a Roth IRA. Any funds converted will be included in taxable income in the year the funds are converted. For the Roth IRA conversion, the Actuarial Present Value (APV) of certain future living and death benefits must be included in the taxable income caused by the conversion.
    • Single Roth IRA conversion – For this calculator, a single Roth IRA conversion is when funds from a Traditional IRA are converted to a Roth IRA by directly purchasing an Allianz® fixed index annuity as a Roth IRA. The calculator assumes the single Roth IRA conversion takes place at issue age. This will result in the converted funds being considered taxable income. Under this calculator, all Roth IRA distributions will meet requirements to be income tax-free. Since the calculator assumes the single Roth IRA conversion happens immediately upon issuing the contract, the APV is zero. This calculator should not be used for an existing Traditional IRA annuity. The results would be different if the single Roth IRA conversion happens after issue age.
    • Series of Partial Roth IRA Conversions – For this calculator, a series of partial Roth IRA conversions happen when an Allianz FIA contract owner converts funds from a Traditional IRA to a Roth IRA over a number of years, starting at issue age. The funds converted in a given year will be treated as taxable income. Since the funds are converted over a number of years instead of as a lump-sum, a series of partial Roth IRA conversions may be less likely to increase the contract owner’s tax rate. The calculator assumes the contract owner’s tax rate stays the same for each partial Roth IRA conversion. Under this calculator, all Roth IRA distributions will meet requirements to be income tax-free.  In the issue age year, the APV is zero, but APV is added to the taxable income for years after the issue age.
  • Input Definitions and Restrictions
    • Product – The Allianz fixed index annuity (FIA) product being issued. This calculator can only show hypothetical values for Allianz Benefit Control+™ Annuity and Allianz 222+™ Annuity.
    • Issue age – The age of the client (contract owner) when the Traditional IRA annuity is issued. The issue age must be between 21 and 80. The maximum issue age for Allianz Benefit Control+™ and Allianz 222+™ is 80.
    • Age when lifetime withdrawals begin – The age of the client when lifetime withdrawals will start. For Allianz 222+™, there is a 10year wait period and minimum age of 60 for the lifetime withdrawal election. This means that lifetime withdrawals cannot start until the owner is at least 60 years old AND the annuity has been held for at least 10 years. Although Allianz Benefit Control+™ is more flexible as a product for lifetime withdrawal election, Roth IRAs require that the owner be at least 59 ½ years old before distributions are income tax free. Due to this requirement for Roth IRA distributions, the age when lifetime withdrawals begin in this calculator for Allianz Benefit Control+™ must be at least 60 years old.
    • Premium – The dollar amount of premium that is put into the annuity. The calculator does not allow for premium to be added after issue age. The minimum premium for Allianz Benefit Control+™ and Allianz 222+™ is $20,000. The maximum premium is $1,000,000 without prior approval.
    • Estimated annual interest – The percent of interest that the calculator will assume is credited to the annuity every year. This interest percentage is the base interest before any Allianz Benefit Control+™ or Allianz 222+™ interest bonus is applied.⁺ The interest on Allianz Benefit Control+™ and Allianz 222+™ will never be negative. This calculator caps the interest illustrated at 4% and the minimum illustratable interest is 0%.
    • Conversion period (years) – The number of years that the annuity will be converted over for the partial Roth IRA conversions. The converted amount each year must be at least $20,000 to meet the minimum premium requirements for the products selected. To ensure that this calculator is meeting this requirement, the conversion period cannot be greater than the total premium divided by $20,000. For example, if the total premium is $100,000, the conversion period cannot be more than 5 years. For the purpose of this calculator, conversions cannot take place after lifetime withdrawals begin.
    • Life expectancy (age) – The age that the calculator will assume the client dies. For the purposes of this calculator, the life expectancy age (age at which the calculator will assume death of the annuitant) must be at least the owner’s issue age plus the conversion period. The life expectancy value is capped at 115.
    • Discount rate – Using discount rate for this input provides an outlook on how a rate of interest would reduce the present value of future lifetime withdrawals, RMDs (if applicable), death benefit (if applicable), and/or tax payments.  This value is restricted to be between 0% and 20%.
    • Tax rate if immediate conversion (single Roth IRA conversion) – The income tax rate that will be used for a single Roth IRA conversion. In many cases, this income tax rate would be higher than the tax rate on partial Roth IRA conversions and higher than the rate on withdrawals from a Traditional IRA because the entire annuity value will be taxable income in one year, which in some cases may result in a higher tax rate for the year of the conversion. This input is restricted to be between 12% and 37%, which are the lowest and highest federal tax rates respectively.
    • Tax rate if series of partial Roth IRA conversions – This is the income tax rate over the course of the partial Roth IRA conversions. This income tax rate in many cases will be lower than the tax rate of a single Roth IRA conversion because each partial conversion is adding less taxable income than a single conversion does, so each partial conversion may result in a lower tax rate than for a single conversion. This input is restricted to be between 12% and 37%, which are the lowest and highest federal tax rate respectively.
    • Tax rate while receiving lifetime withdrawals and RMDs (if applicable) – This is the income tax rate while the owner is receiving lifetime withdrawals from their Allianz Benefit Control+™ or Allianz 222+™ if left as a Traditional IRA. It does not affect any withdrawals from the Roth IRAs since the calculator assumes the withdrawals from the Roth IRAs to be income tax free distributions. When inputting this income tax rate, consider potential future income tax percentage changes. It is assumed that any applicable death benefit on a Traditional IRA will also be taxed at this rate to the beneficiary. This input is restricted to be between 12% and 37%, which are the lowest and highest federal tax rate respectively.
  • Summary Section Definitions
    • Total values – the total dollar amount of payout and/or federal income taxes without taking into account present value.
    • Present values – the total values of payout and/or federal income taxes discounted based on the discount rate.
    • Pre-tax payout – This is the total or present value of lifetime withdrawals and RMDs (if applicable) for an owner plus death benefit for a beneficiary with the given inputs before considering income tax. This number will be different in the Traditional IRA and Roth IRA columns in cases where Required Minimum Distributions apply.
    • Federal Income Tax Rate – These are the income tax rates that the user inputs.
    • Federal Income Taxes – This is the total or present value of taxes that will be paid on Roth IRA conversions or on lifetime withdrawals, death benefit, and RMDs.
    • Net Payout – This is the total withdrawals before income taxes minus total federal income taxes paid. The purpose of the total withdrawals after income taxes is to show the difference in what is left after income taxes for the three options.
    • Tax difference from Traditional IRA – This value is the federal income taxes paid on the Roth IRA conversions minus the federal income taxes on withdrawals from the Traditional IRA. This shows the possible tax advantage of Roth IRA conversions given the assumptions used. If this number is negative, it would indicate that leaving the contract as a Traditional IRA is more advantageous than converting it to a Roth IRA for federal income tax purposes. Which option is more advantageous will generally depend on the assumed tax rates input.

⁺The premium bonus and interest bonus are credited only to the Protected Income Value. To receive the PIV, including the bonus, lifetime income withdrawals must be taken. The Allianz 222+™ must first be held for at least 10 contract years. You will not receive the bonuses if the contract is fully surrendered or if traditional annuitization payments are taken. If it is partially surrendered the PIV will be reduced proportionally, which could result in a partial loss of bonuses.