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July 25, 2024 at 01:56 PM
What You Need to Know
- In a lawsuit, the client says she missed opportunities and made needless tax payments.
- The firm described the situation as a miscommunication, the lawsuit says.
- The complaint seeks damages for an unspecified amount.
Creative Planning faces a lawsuit from a retired client who alleges the firm failed to convert funds from her traditional IRA to a Roth IRA last year, as she had expected based on a planning meeting with a wealth manager.
The client contends she has missed financial opportunities the conversion would have afforded and made needless tax payments when she expected it to happen.
Sheryl Crist, who seeks damages in the complaint filed last month in a Kansas state court, initially met with a Creative Planning partner/private wealth manager in November 2021 in hopes of becoming a client and gaining professional management for her brokerage and retirement accounts, as well as retirement guidance, the lawsuit says.
The Missouri resident discussed her retirement and estate needs with the partner, who had a 30-year outlook for her finances, and Crist told him that she wanted to use her Roth IRA as an investment vehicle for her estate, according to the lawsuit.
The pair “discussed converting as much as possible from Crist’s traditional IRA into her existing Roth IRA while keeping Crist within what was considered the 24% tax bracket,” the complaint says. The wealth manager “placed an emphasis on performing Roth conversions from Crist’s traditional IRA every year until 2030,” it alleges.
If properly executed, the plan would convert about half of Crist’s traditional IRA by 2030, making the traditional IRA’s required minimum distributions more manageable and giving her the benefits associated with the Roth IRA’s tax-free growth and withdrawals, the suit contends.
In a document created for this meeting, Creative Planning said it would work with Crist yearly to determine how much of her IRA to convert to meet these goals, the lawsuit alleges. Crist and Creative Planning executed an advisory agreement the next day, it says.
Under the arrangement, the firm agreed to discharge its investment management responsibilities consistent with her designated investment objectives, according to the lawsuit. Crist transferred most of her brokerage accounts, including a traditional IRA and a Roth IRA, to Creative Planning that month.
Crist retired in 2022, made quarterly estimated tax payments on the liability anticipated from the Roth conversion, and Creative Planning — aware she was making those tax payments —converted $130,000 that year, the lawsuit alleges.
She made similar payments in 2023, expecting Creative Planning to convert at least $150,000 to her Roth IRA, it says, alleging the firm was aware she was making these payments. At no point during 2023 did Creative Planning tell Crist to stop making the estimated tax payments or work with her to determine how big the conversion should be, she contends.
