From the April 2010 issue of Investment Advisor • Subscribe!

The Roth Wave

More On Tax Planning

from The Advisor's Professional Library
  • Precious Metal Taxation Precious metals can be used to better diversify a portfolio but can be volatile. The tax implications of investing in these types of assets vary depending upon the situation.
  • Charitable Giving Charitable giving can reduce your clients’ tax liabilities. However, the general and verification rules for the deduction of charitable gifts must be understood in order to take full tax advantage of such gifts.

Tax advisors believe a Roth IRA conversion would benefit 43% of their clients this year, a big increase from 13% last year, according to a new study by Fidelity Investments. More than a third of clients eligible to take advantage of the recent removal of income limits on Roth IRA conversions are expected to complete a conversion in 2010, and 88% of advisors expect discussions with their clients about Roth IRA conversions will increase during the next six months, the survey of some 500 tax advisors found. Of conversions already started or completed, 44% are for $50,000 or more. Two-thirds of advisors in the survey indicated they think income taxes will generally rise in the future.

Advisors reported that although the vast majority of their clients are interested in converting to a Roth IRA, they also are concerned about potential tax costs. Fidelity said in a statement that it believes investors should generally avoid using proceeds from a Roth IRA conversion to pay the tax costs because that reduces the amount that can potentially grow federally tax free and could offset any tax savings gained by converting. But according to the survey, half of tax advisor clients plan to pay for a conversion from the account being converted.

The survey found that among tax advisor clients who are likely to convert to a Roth IRA this year, half will convert all eligible assets from accounts such as a traditional IRA or 401(k) with a former employer. And 54% of them plan to take advantage of the one-time opportunity this year to split the taxable income between their 2010 and 2011 tax filing years. When examining who initiated Roth IRA discussions, tax advisors say they started the conversation more than half (59%) of the time. Of these discussions, 57% said their clients were hearing about the opportunity for the first time.

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