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Financial Planning > Tax Planning

Roth IRA Conversion Beckons

By Michael S. Fischer

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This news article originally appeared on WealthManagerWeb.com on 3/12/2010.

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, the survey of some 500 tax advisors found. Of conversions already started or completed, 44% are for $50,000 or more.

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.

Michael S. Fischer is New York-based financial writer and editor and a frequent contributor to Wealth Manager.

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