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Wall Street giants’ outsourcing operations in India suffer when workers fall ill

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Approximately 8,300 miles east of Wall Street, on a stretch of Bangalore’s Outer Ring Road, is what was once the heart of the back office of the global financial industry.

Before the pandemic, this group of glass and steel towers housed thousands of employees from firms such as Goldman Sachs Group Inc. and UBS Group AG, who played critical roles in everything from risk management to customer service and compliance.

Now the buildings are eerily empty. And with the case count increasing in Bangalore and much of India, the work-from-home arrangements that have sustained Wall Street’s back-office operations for months are under intense strain. A growing number of employees are ill or struggling to find critical medical supplies, such as oxygen, for family or friends.

Standard Chartered Plc said last week that around 800 of its 20,000 employees in India were infected. Up to 25% of employees on some UBS teams are absent, said a UBS executive who spoke on condition of anonymity for fear of losing his job. At Wells Fargo & Co.’s offices in Bangalore and Hyderabad, work on co-branded cards, balance transfers and rewards programs is being delayed, an executive said.

While banks have thus far avoided major disruptions by shifting tasks to other offshore centers, the Covid crisis in India has exposed a little-discussed vulnerability for companies that have spent decades outsourcing functions in the country. India’s outbreak is intensifying even as vaccines fuel economic recovery in other parts of the world, increasing fears of a back office bottleneck at a time when Wall Street companies have rarely been more. busy.

“This is not a local problem, just in India, this is a global crisis,” said DD Mishra, senior managing analyst at researcher Gartner Inc. The current wave will be “significantly higher” and organizations staffed in India “will need to take action to plan and mitigate if necessary, ”Mishra and colleagues wrote in a note last week.

Nasscom, the key lobbyist for India’s $ 194 billion outsourcing industry and its nearly 5 million employees, has downplayed the threat to operations. But Mishra and his fellow Gartner analysts say they are receiving a daily flood of calls from anxious global customers asking about the Covid-19 situation.

The total coronavirus infections in India has exceeded 21 million, of which around 7 million have been added since mid-April. The state of Karnataka, whose capital is Bangalore, reported for the first time more than 50,000 new infections during the last 24-hour period, almost half of them in the city.

Experts have warned that the crisis has the potential to worsen in the coming weeks, with a model predicting as many as 1,018,879 deaths by the end of July, quadrupling the current official tally of 230,168. A model produced by government advisers suggests that the wave could peak in the next few days, but the group’s projections have been changing and were wrong last month.

In Bangalore, Delhi and Mumbai, the three main bases of operations for financial giants, infection rates have reached such alarming levels that local governments have ordered strict restrictions on movement.

While the crisis has hit swaths of the nation’s $ 2.9 trillion economy, the latest wave has hit the 20-something segment of the population that dominates outsourcing and is hard to replace. Most of them are English-speaking and technically skilled workers.

Continuity planning

For now, back-office units are rounding up part-time workers or asking employees to perform multiple functions and re-staffing them to compensate for those who are absent. They are scheduling overtime, postponing low-priority projects, and conducting pandemic continuity planning exercises for multiple locations in case the virus wave intensifies.

A Wells Fargo employee said some work is being transferred to the Philippines, where staff work night shifts to compensate. The San Francisco-based bank employs some 35,000 workers in India to help process personal, mortgage and auto loans, collect collections, and assist clients who need to open, update or close their bank accounts. The company did not respond to a request for comment.

A UBS employee said that with many of the bank’s 8,000 employees in Mumbai, Pune and Hyderabad absent, work is being shipped to centers like Poland. Swiss bank workers in India handle business settlement, transaction reporting, investment banking support and wealth management. Many of the tasks require same-day or next-day deliveries. A representative for UBS did not respond to a request for comment.

With the uncertainty surrounding how soon the Indian government will contain the crisis, an executive who asked not to be named compared the situation to flying blind with no idea how many employees will be affected from week to week.

Load rebalancing

“We are looking closely at how we can rebalance the loads,” Standard Chartered CEO Bill Winters said in an earnings call last week, noting that some of the work has been shipped to Kuala Lumpur, Tianjin and Warsaw. “In any case, we think we are very well provided.”

Barclays Plc CEO Jes Staley said some functions were moved to the UK from India. Call volume has increased and people are distressed, he said, adding that signs of pressure were something to watch out for. The bank has 20,000 employees in India.

Last year, when a sudden lockdown ordered by Prime Minister Narendra Modi saw these banks struggling to keep their operations running, the European Banking Authority said the push to outsource support functions “exposed these banks to operational risks.”

After asking its employees to work from home in droves last year, most of them have continued to operate at levels close to 100% work from home. Natwest Group Plc’s workforce in Bangalore, Delhi and the southern city of Chennai, which accounts for a fifth of its global total, is fully configured to work from home.

Management bandwidth

Similarly, thousands of Goldman employees are working from home, performing high-level business tasks such as risk modeling, accounting compliance, and application building. A representative from the bank said that workflows can be absorbed by a larger team if necessary and that there has been no material impact so far.

Citigroup Inc. said there are currently no significant disruptions, while Deutsche Bank AG said employees worked seamlessly from home. Morgan Stanley and JPMorgan Chase & Co. detailed the relief efforts they are undertaking, but did not elaborate on the impact on their operations. Last week, HSBC Holdings Plc CEO Noel Quinn said he is “watching it closely” and ruled out any material impact at this stage.

In addition to worrying about disruptions in operations, employee well-being and obtaining medical help are also taking up a great deal of management bandwidth in every large outsourcing unit.

At a recent meeting of the virtual corporate strategy team for everyone at Accenture Plc, for example, the talk wasn’t about pay raises or the usual promotions. Instead, worker after worker demanded flexibility, reduced workloads and Fridays without meetings, said one executive, who asked not to be named to discuss internal company matters.

Their size has become an obstacle, one executive said, but it is unclear where else they can turn for talent and scale, he added.

“We are telling clients that they need to relax service levels and lower expectations for the next few weeks,” said Mishra, an analyst at Gartner. “This is not a normal situation.”


© 2021 Bloomberg LP

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India abstains from voting on UN General Assembly resolution on Myanmar

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India abstained on a UN General Assembly resolution on Myanmar, saying its views have not been reflected in the draft resolution and that a “consultative and constructive” approach involving Myanmar’s neighboring countries is important. while the international community fights for the peaceful resolution of the problem.

The UNGA on Friday adopted a resolution on Myanmar calling for “the Myanmar armed forces to respect the will of the people freely expressed by the results of the general elections on November 8, 2020, to end the state of emergency and to respect all the human rights of the people of Myanmar and enable Myanmar’s sustained democratic transition, including the opening of the democratically elected parliament, and working so that all national institutions, including the armed forces, are under a fully inclusive civilian government that is representative of the will of the people “.

The resolution was adopted with 119 countries voting “yes”, Belarus voting “no” and India along with 35 other countries abstaining, including China and Russia.

In its explanation of vote, India said that “we consider that our views have not been reflected in the draft that is being considered for approval today. We would like to reiterate that a consultative and constructive approach involving neighboring countries and the region continues. being important, since the international community fights for the peaceful solution of the problem “.

“The fact that there is a lack of support from all neighboring countries, as well as from various countries in the region itself, should hopefully serve as an eye-opener for those who choose to pursue a hasty course of action,” India said, and He added that he does not believe that the presentation of this resolution for approval at this juncture is “conducive to assisting our joint efforts towards strengthening the democratic process in Myanmar.”

“Therefore, we are forced to abstain,” India said.

(Only the headline and image for this report may have been edited by Business Standard staff; other content is automatically generated from a syndicated feed.)

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India abstains from voting on UNGA resolution on Myanmar

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The UNGA adopted a resolution on Myanmar on Friday. (Image from Reuters)

India abstained on a UN General Assembly resolution on Myanmar, saying its views have not been reflected in the draft resolution and that a “consultative and constructive” approach involving Myanmar’s neighboring countries is important. while the international community fights for the peaceful resolution of the problem.

The UNGA adopted a resolution on Myanmar on Friday calling for “the Myanmar armed forces to respect the will of the people freely expressed in the results of the general elections on November 8, 2020, to end the state of emergency and to respect all the human rights of the people of Myanmar and enable Myanmar’s sustained democratic transition, including the opening of the democratically elected parliament, and working so that all national institutions, including the armed forces, are under a fully inclusive civilian government that is representative of the will of the people “.

The resolution was adopted with 119 countries voting “yes”, Belarus voting “no” and India along with 35 other countries abstaining, including China and Russia.

In its explanation of vote, India said that “we found that our views have not been reflected in the draft that is being considered for adoption today. We would like to reiterate that a consultative and constructive approach that involves neighboring countries and the region continues to be important as the international community fights for the peaceful resolution of the problem ”.

“The fact that there is a lack of support from all neighboring countries, as well as from various countries in the region itself, should hopefully open the eyes of those who choose to pursue a hasty course of action,” India said. He added that he does not believe that the presentation of this resolution for adoption at this juncture is “conducive to assisting our joint efforts towards strengthening the democratic process in Myanmar.”

“Therefore, we are forced to abstain,” India said.

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Buy these 6 types of stocks below as big tech falters and inflation falls, says Swiss bank UBS.

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US stocks were in the red on Friday, following a tumultuous Thursday in which tech companies helped the Nasdaq profit as the Dow and S&P 500 tumbled.

It is time to reassess the market landscape.

Our call of the day, from the team of Chief Investment Officer Mark Haefele at UBS UBS,
-2.27%
Global Wealth Management urges investors to consider six types of stocks.

The Swiss bank’s group identifies two main trends going forward: gains for Asian markets, as COVID-19 vaccines help local stocks; and a drop in inflation from currently high levels.

These dynamics require investors to find new opportunities. While UBS maintains a positive outlook on global equities, the bank has six ideas for selecting stocks.

One is to diversify technology positions away from megacaps in the US and Asia like Apple AAPL,
-1.01%,
Amazon AMZN,
-0.07%,
Google alphabet
-1.34%

Goog,
-0.64%,
Facebook FB,
-2.04%,
Alibaba BABA,
+ 0.33%,
and Tencent 700,
+ 0.67%.
UBS sees “limited short-term catalysts” for these stocks. Instead, Haefele’s group identified opportunities in digital leaders in Europe; small and medium-sized companies exposed to trends such as 5G, fintech, greentech and healthtech; and digital subscription businesses.

Another is to buy energy shares, despite the fact that this sector has risen almost 50% so far this year. It is now only at pre-pandemic levels, UBS said, while the S&P 500 index is 25% higher than its peak in February 2020. Rising oil prices, which the bank predicts will come, should boost these stocks.

The third idea is to invest in finance. S&P 500 financial stocks, like banks, have rebounded 9% since early March, and macroeconomic trends, like higher yields, pave the way for more gains, UBS said.

Investors should also favor US small and mid-cap stocks – that is, companies with a market capitalization of less than $ 10 billion but greater than $ 300 million. “On a price-to-earnings basis, valuations of US small and mid-caps are close to 20-year lows relative to large caps, despite the likelihood that growth of the earnings of the smaller companies will exceed the earnings of the large caps until at least 2022. ” Haefele’s team said.

But the biggest opportunities, according to UBS, are in Asia.

Chinese stocks have faced setbacks in recent months, with the MSCI China index falling into bearish territory in May amid higher US yields and antitrust measures against Chinese tech companies. So buy the fall, said the Swiss bank.

For its sixth, UBS also predicts gains in Japan, which is geared towards the global recovery. The group expects 40% growth in earnings per share for the MSCI Japan index this year, which is good news for Japanese stocks.

It should be noted that there are risks to a global rally, UBS said. More persistent inflation, slower growth, geopolitical tensions and a resurgence of COVID-19 pose a threat to another rally in equities.

The buzz

US President Joe Biden signed the law into law on the last US federal holiday on Thursday, which commemorates the end of slavery with the 16th National Independence Day on June 19. On that day in 1865, federal troops marched on Galveston, Texas, two months after the end of the Civil War, to seize control of the state and free the last of the enslaved Americans. Read more about June 19th here.

A record $ 756 billion in cash flowed into the US Federal Reserve’s “reverse buyback” facility Thursday after a sale of securities to money market funds and the nation’s largest banks. In reverse repurchase operations, the Fed sells securities for cash and agrees to buy them back for a higher price at a later date, temporarily. reduce the amount of reserve balances On Wednesday, the Fed announced that it was increasing the reverse repurchase rate from 0% to 0.05%.

North Korea’s totalitarian leader, Kim Jong Un, ordered his government to prepare for a further confrontation with the United States under Biden, according to state media on Friday. The news came days after the United States urged the state to abandon its nuclear program.

Investment banking giant JPMorgan Chase JPM,
-2.53%
bought one of the UK’s most popular online wealth managers, Nutmeg, for an undisclosed sum. The move paves the way for an expansion of Chase’s online-only retail banking services in the UK, meaning the US bank will compete directly with companies like Barclays and HSBC.

The markets

US DJIA stocks,
-1.58%

SPX,
-1.31%

COMP,
-0.92%
They were in the red at noon as investors continue to absorb the Fed’s shifting stance on rates and inflation. European equities SXXP,
-1.58%

UKX,
-1.90%

PX1,
-1.46%

DAX,
-1.78%
similarly fell across the board, while Asian stocks NIK,
-0.19%

HSI,
+ 0.85%

SHCOMP,
-0.01%
The most mixed day ended.

The graphic

Chart via Wolf Street Financial Blog.

Our chart of the day, courtesy of Wolf Richter at Wolf Street Financial Blog, shows the massive rally in cash at the Fed following Thursday’s reverse buyback sale. Drains more than six months of [quantitative easing] out of the market, ”Richter said.

Random readings

An amphibious car for less than a Tesla? Egyptian inventors say They’ve made cars that can drive on water priced between $ 19,000 and $ 44,800, depending on specs.

A fish to survive meme populations? The coelacanth – a type of person the size of a person giant fish that has been around since the time of the dinosaurs“It can live for 100 years, a study found.”

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Assam Congress MLA Rupjyoti Kurmi leaves Congress, ready to join BJP

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Assam’s four-time MLA Congress Rupjyoti Kurmi has left the party and is set to join the BJP on Monday. Kurmi alleged that there is no voice of young leaders in Congress.

“The condition of the party will never improve if Rahul Gandhi continues to lead the party,” Kurmi told reporters after submitting his resignation to the Speaker of the Assembly on Friday. “We have opposed the alliance with the All India United Democratic Front (AIUDF) in the recent Assembly elections and we see that the Congress suffered a humiliating defeat due to the alliance in Upper Assam.”

Later, Congress expelled him from the main party membership. Kurmi is the third leader of the Assam Congress to leave the party in recent months. Before the Assembly elections, Ajanta Neog and Rajdeep Goala had left the party. Neog is now a minister in the current government. “I feel that the leadership of Congress in New Delhi and in Assam does not want young people to grow up in the party. They do not want people from backward communities, such as the tea tribe, to show up, so I decided to resign from Congress,” he said. Kurmi.

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India says hopes to resume exports of coronavirus vaccine doses

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India, the world’s largest vaccine maker, wants to resume exports of coronavirus doses but cannot do so until its domestic needs are met, the head of the country’s Covid-19 task force said on Friday.

Once our immediate need to vaccinate a significant proportion of the Indian population is met and vaccine stocks are visible from multiple sources, we would like to play the role of serving others and providing them with vaccines, said Dr. Vinod K. Paul said in an interview with The Associated Press.

Paul defended the Indian government’s move to restrict vaccine exports in April while fighting a fierce surge in infections.

He noted that India had given away a substantial amount of vaccines earlier in the year when it launched its own immunization campaign. So that has to be respected and it has to be recognized, as not many nations have, he said.

As of January, India began exporting vaccines to more than 90 countries. But exports came to a halt when infections soared in India, leaving many developing countries without adequate supplies and affecting millions of people.

While critics accused India of mismanaging its slow vaccination efforts at home, countries such as Nepal and Bangladesh began to look to China to fill their vaccine gaps.

The Serum Institute of India, the world’s largest vaccine manufacturer, also abandoned its role as the main supplier of COVAX, the UN-backed project to supply vaccines to poor regions of the world. Last month, he said he may not be able to start dosing until the end of this year, a significant blow to global efforts to immunize people against the coronavirus.

Paul said the resumption of exports is still on the radar. But when asked when the restrictions would be lifted, he replied: It’s not fair to set a date at this time.

Confirmed coronavirus cases in India have exceeded 29 million, while deaths have exceeded 380,000. Experts believe that both numbers are well below those counted.

Media reports have cast doubt on the government’s data collection, with crematoriums and death counts across the state showing different figures. Paul said the government has no reason to hide deaths or cases.

New cases are finally declining after surpassing 400,000 a day in May, a world record. But authorities are bracing for another possible wave of infection and are focusing on increasing vaccination rates.

Currently, less than 5% of India’s population is fully immunized, and experts warn that vaccination rates must increase significantly to protect a considerable part of the population before the end of the year.

The hope is that India will see a rapid increase in vaccines in the coming months. Last month, Paul told reporters that around 2 billion doses could be available by December under a roadmap that depends on India’s two main suppliers, Serum Institute and Bharat Biotech, increasing production and other. Five possible vaccines will be available in the coming months.

But experts and critics noted that both the Serum Institute and Bharat Biotech have struggled to push manufacturing, and that the other potential vaccines are still undergoing trials without a clear date of when they would be available, raising questions about whether the estimate of Paul was realistic.

Paul acknowledged Friday that it was an optimistic projection. But he said it was based on estimates from the manufacturers themselves and that the figure showed the potential exists.

We are also mindful of the fact that there are steps to take, he said, admitting that vaccine manufacturers may face regulatory hurdles or problems sourcing raw materials.

He said India can expect to see at least 740 million doses between August and December. But this includes 300 million of a vaccine that is still being tested late and not yet available. More orders will be placed in the future, he added.

While much of India’s vast rural areas of interior were largely spared from COVID-19 last year, that has not been the case during the recent surge. Access to health care is much more limited in the countryside, raising fears that the virus could ravage small towns and villages incessantly.

In the future, the focus will have to shift to these small towns and villages, Paul said.

The extension of our preparation will be much more inland, towards rural areas, he said.

(Only the headline and image for this report may have been edited by Business Standard staff; other content is automatically generated from a syndicated feed.)

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International Yoga Day: Yoga for good health and general well-being

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Bring Pranayama into your daily practice. An easy way to introduce this is to practice pranayama as soon as you wake up.

By Shraddha Iyer,

With the fast-paced lifestyle and high levels of stress in the 21st century, yoga has become a very important part of many people to maintain good physical and emotional health. Much scientific research has shown that yoga can help reduce stress levels, increase awareness, build immunity, and build strong physical and mental health, as well as help to regulate overall body systems.

Here are some simple but effective ways to get started in yoga for good health and overall wellness in your life.

1) breathe

Bring Pranayama into your daily practice. An easy way to introduce this is to practice pranayama as soon as you wake up.

Start with Kapalbhati kriya, one of the most powerful cleansing techniques, in which you passively inhale and actively exhale through the nose with short bursts or strokes and allow the abdomen to contract as the diaphragm moves upward. Let the inhalation happen naturally. Some of the benefits of this kriya are:

-Helps weight loss and increases metabolic rate

-Improves lung capacity

-Helps regulate blood glucose levels

-Improves digestion and many more similar benefits

Add Bhastrika, the 3 dosha balancer (known as vata, pitta, and kapha), or a quick energy charger to your daily practice. In this, inhale deeply through the nose, raise the arms, while the palms are open, then exhale forcefully, bringing the palms towards the shoulder making a fist with the palms. Repeat this 15 to 20 times at a medium pace.

This pranayam

-Helps increase oxygen levels in the body almost immediately

-Increase levels of consciousness

-It is excellent for improving lung health in general

Practice Bhramri pranayama, the stress buster. Simply close the ears with your index fingers by pressing the cartilage between the cheek and the ears. Close your eyes and let your tongue touch the roof of your mouth. Breathe in through your nose and, as you breathe out through your nose, make a bee-like buzzing noise. feel the vibration as you do it. You can repeat this 3 to 5 times.

Some of the many benefits include

-Release stress by activating the parasympathetic nervous system

-Improves levels of consciousness and develops focus

-Helps eliminate migraines or headaches

-It is excellent for people suffering from high blood pressure

2) Move

Include yoga asanas in your routine. Practice Surya Namaskars daily to maintain metabolic rate. It is a combination of 12 asanas and 2 series to be practiced, preferably early in the morning on an empty stomach and facing the sun.

The first step (Pranamasana) consists of starting by standing on the front edge of the mat with the legs aligned with the shoulder or together, with the palms in Namaste at the sternum.

2nd step (Hastauttanasana) Breathe in and lift your arms up and back with Namaste’s palms and slightly arch your back pressing your hips forward.

3rd step (Hastapadasana) consists of bending forward with the torso and arms keeping the back flat and the spine straight with the shoulder blades together, if possible, place the hands on the floor or on the shin.

4th stepAshwasanchalanasana) Inhale and keep the right leg back and the left between both palms, keep the right knee on the floor and the toes of the right foot loose.

5th step exhaleDandasana) Get into a plank position by sending your left leg back, making sure your hips, shoulders, and ankles are in a straight line.

6th step inhaleAshtanga Namaskara) Lower yourself keeping your knee, exhale your chest and chin on the floor.

7th step breatheBhujangasana) Slide and widen by lifting your chest like a snake, make sure your elbows are bent and shoulder blades together.

The eighth step is to exhale (Adho Mukha Svanasana) in the inverted v position.

Step 9 Inhale (Ashwa Sanchalanasana) and bring your right foot forward between both palms.

Tenth stepHastapadasana) exhale and bend forward bringing your left foot forward.

11th stepHastauttanasana) Breathe in and lift your arms up and back with Namaste’s palms and slightly arch your back pressing your hips forward.

Step 12, exhale and return to Pranamasana.

Repeat the same on the other side to complete 24 steps in total.

3) Sit quietly

Find time to sit quietly and meditate. Use the various guided meditations available online to get started, you can download the SARVA app for more such content.

You can start with mindfulness meditation, sit in any comfortable position with your spine straight, begin to breathe deeply and focus on your inhalations and exhalations, notice the expansion and contraction of your lungs, notice how the breath passes into your nostrils, and all the way. outside. Observe the sound of your breathing and keep your attention on different aspects of breathing such as your heartbeat, your pulse, etc. You can also do a chakra meditation by focusing on the chakra you want to open. You can do an energy recharge meditation daily to keep your mind active and away from the negative talk of the mind.

In general, include yoga in your lifestyle in different ways to see changes not only in your physical health but also in your mind. It is a beautiful practice and a journey in which one will experience many wonderful changes and grow as an individual.

(The author is Senior Yoga Instructor at SARVA. The article is for informational purposes only. Consult Yoga experts and professionals before beginning any practice. The opinions expressed are personal and do not reflect the official position or policy of Financial Express Online) .

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To Roth or not to Roth? Part ii

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I have some advice for those of you who would dare to question the conventional wisdom about Roth conversions to your 401 (k) s or IRAs:

Be prepared for a significant setback.

You should know, because I dedicated last week’s column to questioning that conventional wisdom. I reported on extensive research that found that while Roth conversions often work in the end, it takes a lot longer than most realize to get that benefit, and in any case, the benefit is usually quite small.

The indefinite was carried out by Edward McQuarrie, professor emeritus at the Leavey School of Business at the University of Santa Clara. Fully aware that his findings will reduce this setback, he goes public with the indefinite in which he incorporates the myriad of factors that are relevant to determining whether a conversion makes sense. In an interview, he said: “In fact, you may be among the lucky few who will receive a large and fast payment from a Roth conversion, as opposed to the slow and small payment that I found to be the norm. But you owe it to yourself. test it with a spreadsheet. “

In this column I reply to a series of emails I received after last week’s column. In each case, I reached out to McQuarrie for his ideas, which are included below.

“The study does not mention a potential benefit of a Roth conversion: Reducing the Required Minimum Distribution (RMD) on the portion of retirement funds left in a traditional IRA. A few years ago (when income tax rates were actually higher), I gradually converted about half of my retirement portfolio to Roths. As a result, my RMD is quite low annually. “

McQuarrie’s answer: Lowering RMD is a common motivation for Roth conversions. But it is not clear that it will be better for having done it. Although I cannot know your specific situation, there is a good chance that you paid a tax rate of 28% on your conversions, in exchange for reducing RMDs that would otherwise have been taxed to 22%. If so, it will take decades for your conversion to break even in terms of net present value. Please see the spreadsheet I provide on my website to know how to do the calculation. As you’ll see from that spreadsheet, for couples married in 2021, total income (RMD plus Social Security plus other income) must exceed $ 200,000 to be taxed at a rate greater than 22%. That’s a big hurdle, and it increases every year as tax brackets adjust for inflation.

“I use my Roth as a kind of trust fund for my daughter, who is now 40 years old. Due to the change in tax law, she will have to collect it within 10 years of my death, but she will never pay income taxes, as she would with a traditional inherited IRA. That will likely save you a lot more than the tax I paid for the conversions. “

McQuarrie’s answer: I’m not sure you’ve taken time value for money into account here. Let’s say your daughter inherits in 20 years and the traditional IRA in her hands would have been taxed at roughly the rate she paid for the conversion. Instead, he chose to pass the tax-reduced post-conversion amount on his Roth account to his daughter, who will not pay taxes on it or the subsequent appreciation. But it also transfers the future (negative) value of the tax you paid to convert, which would have remained in the traditional IRA to appreciate. You will probably be better off, Roth conversions always pay off over several decades with roughly constant tax rates. But I challenge you to show on a spreadsheet that the conversion will save you “a lot more than the tax I paid,” in terms of net present value.

“You didn’t mention the time in life when many people would benefit from a Roth conversion. I recently retired, I have a small pension, I am not taking Social Security yet, and I am about seven years away from RMD. But I have a good IRA. When those RMDs roll in, I will face a huge tax bill plus much higher Medicare premiums. For the next several years, it seems that a Roth conversion every year would be a wise move. I will pay taxes on the converted amount at a much lower rate than I will pay in RMD. “

Response from McQuarrie: Your age and situation were the exact focus of my article. Let’s be specific about your “good IRA account.” If you are single, is it more than $ 1.2 million ($ 2.4 million if married)? Otherwise, projecting seven years forward, you won’t have to pay even the first tier of Medicare surcharges, and you’ll only be in the 22% tax bracket, which I don’t consider “huge.” However, if you can convert today within the 12% range, whose upper income limit is roughly $ 52,000 for a single taxpayer, then in fact a Roth conversion will pay off in not too many years. That $ 52,000 conversion will reduce your first year RMD by approximately $ 2,500, saving you more than $ 500 in income taxes at a rate of 22%, and these savings will continue for years to come as well. But what funds would it live on during that year it was converted? If you have any taxable income (for example, your pension), then you won’t be able to convert as much as $ 52,000, which means you’ll save less than $ 500 in income taxes.

His article on the Roth conversion missed an important topic: A traditional retirement IRA distribution can make more of your Social Security benefits taxable, resulting in a 12% rate that is actually more like 20%. On the other hand, a Roth does not cause more than your Social Security payments to be taxed. This can benefit lower-income taxpayers more than it seems when the topic of Social Security taxes is overlooked.

McQuarrie’s Response: You have a good point: Your effective tax rate in retirement will be higher if your income increases enough to make some of your social security benefits taxable. If you can do a Roth conversion today at 12%, to save more than 20%, of course it will pay off, and relatively soon. However, what funds will you use to live through the conversion year? Every dollar of taxable income reduces the amount you can convert by 12%. And can you convert enough at 12% to make a difference? (To get even a $ 1,000 reduction in your first year RMD, it will take about $ 18,000 to convert at age 65.)

What is the end result that I extract from this discussion? The wisdom of a Roth conversion, or lack thereof, is not something you can discover on your own using simple rules. You need to run the numbers. Be my guest.

Mark Hulbert is a regular contributor to MarketWatch. Your Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be contacted at [email protected]

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