April 15, 2010

Boomers unenthused by changing Roth rules

Few boomers are jumping at the chance to convert their traditional IRAs into Roth IRAs. TheStreet.com reports on a survey by USAA which found that 58 percent of boomers with an IRA are aware of the changes, yet 70 percent don't have any intention of converting. Seventeen percent aren't sure whether they will.

It seems tax fears are behind boomers reluctance. Forty-four percent said they didn't think they'd be in a higher tax bracket after they retire, and they don't want to pay higher taxes now. Over one-third of boomers were advised not to make the conversion by their tax planner or financial advisor, and 27 percent said they couldn't pay the taxes that would be due on the converted funds.

Ken Kilday, a wealth manager with USAA's Wealth Management practice, is optimistic about financial advisors' opportunities.

"It is a positive sign that some people are consulting financial advisers to determine if a Roth IRA conversion makes sense, but we are surprised by how many investors are gambling on future income-tax rates to make this decision," Kilday told TheStreet.

"The combination of today's historically low income-tax rates and the flexibility to pay taxes on the converted funds in 2010 -- or to split it between 2011 and 2012 -- should encourage more investors to work with a financial expert to explore whether making a full or partial conversion this year will help them meet their long-term financial goals."

One way advisors can help boomers confused about Roth conversions is simply by providing more information. Nearly half of boomers said having more information about the benefits may lead them to change their minds, and 46 percent said understanding how the conversion process works would be helpful.

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