RothCalc2010 Aids Advisors in Roth IRA Conversions

This news article originally appeared on on 1/20.

For both the young and the old, Apple's iPhone has become an indispensable part of day-to-day life, so it seemed the most natural platform for Chicago-based accounting and tax firm the NDH Group to launch its RothCalc2010 , an iPhone application available for $0.99 designed to help investors determine whether it makes sense for them to convert from a traditional IRA to a Roth IRA. (For further reporting on determining whether to convert, please click here.

"We have seen many of our own clients ask about the benefits and detriments of making the conversion [to a Roth IRA], and we developed this tool originally for them," says Joe Mizzi, RothCalc2010 developer and NDH Associate. "But if our clients were interested in something like this, we knew others would be, too, so we wanted to make something accessible to all, and the iPhone was the best way to get it out to the public."

The iPhone, says Jeremy Dubow, a partner at NDH, continues to gain popularity, and is one of the simplest venues for the kinds of quick, simple, and easy-to-use applications that many investors are seeking these days. The RothCalc2010 application computes the after-tax present value of an individual's retirement income stream and determines if converting to a Roth IRA makes good financial sense or not.

Using a few basic inputs--an individual's age, when they plan to retire, and their tax rate information--the application can modify variables such as future tax rates and investment growth rates, Dubow says, and can also run scenarios to recognize Roth conversion income in 2010 versus deferring it to 2011 and 2012. "It is clear that almost all taxpayers are considering the conversion for 2010, but not everyone has a tax advisor or an investment advisor, so we wanted to develop a tool that can give an answer," Dubow says. "For some people, the decision will be a slam-dunk, but there will also be people on the margins who can take the result given by the application to a tax advisor or investment advisor, who can then help them further with their decision."

Whether or not to convert to a Roth IRA is one of the biggest decisions Americans need to make with respect to their future retirement savings, says Maria Bruno, an analyst in Vanguard's investment strategy group and a Roth IRA expert. As of January 1, legislative changes have made it possible for individuals to convert from their traditional IRAs regardless of their income or tax filing status, and if they convert this year, they can postpone the tax due for the conversion and pay it off over the next few years. "We have seen increased traffic to our Web site for [the Roth IRA conversion] and increased client interest in terms of the number of calls we're receiving on the topic," Bruno says.

According to Cambridge, Massachusetts-based Cogent Research's 2010 Investor Brandscape Study, a greater number of investors are favoring IRAs over 401(k) and other employer-sponsored plans. For the first year since Cogent started the tracker in 2006, affluent investors report having more dollars allocated to IRAs than to employer-sponsored retirement plans, says Meredith Lloyd Rice, a project director at Cogent and one of the authors of the Brandscape Study.

"While we don't have specific information about IRA conversion or Roth IRA ownership, given the increased momentum toward IRAs, I think that any change that gives investors even more flexibility could help to further accelerate the movement," Lloyd Rice says.

Conversion transactions are certainly up compared to this time last year, which is not a surprise, says Bruno, but "we don't know for how long this will last or how sustained the momentum will be."

Indeed, the conversion to a Roth IRA is heavily contingent upon an individual's tax situation, Bruno says. Tax expectations for the future should be the greatest determinant, so the decision needs to be taken only after careful thought and analysis of each individual's tax situation. "We are certain of what the tax structure looks like today but 10 or 20 years down the line, we have no idea what it will be like," Bruno says. "If people feel they will be in a higher tax bracket when in retirement, then conversion might be attractive, since they would be locking in taxes at today's rate. But it might not be prudent to do a conversion if someone is going to be in a lower tax bracket after retirement."

Vanguard, like many other companies, has an extensive array of tools to help individuals determine whether or not converting makes sense for them. The company is also furthering its efforts to educate financial advisors on this topic, Bruno says, and providing them with the right kinds of tools and educational materials to help their clients make the right decision.

While tools and calculators aimed at individual investors provide a good starting point that many people need, it is ultimately best for taxpayers to seek the help of an advisor, Bruno says. "Calculators provide a good opportunity for individuals to begin thinking about the process of conversion, but ultimately, an advisor has better information and more robust tools that can perform more robust simulations," she says. "Advisors can also help people see where they are in the life cycle, because the nuances of conversion will be different depending on what stage people are at."

Savita Iyer-Ahrestani is a freelance business journalist currently based in New Jersey. She can be reached at

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