Investors Want More Info before Roth Conversion

TD AMERITRADE said its recent survey found there is no mad dash by investors to convert retirement savings to a Roth IRA when a new rule becomes effective January 1.

The rule makes those with income over $100,000 eligible to convert to a Roth.

According to a press release, of those surveyed who have a retirement savings account that could be converted to a Roth IRA, 44% said they are still undecided on the matter, although 85% of this group is at least 10 years away from retirement, and 47% expect their income to be more than $100,000 this year. The top reason for their indecisiveness, cited by 45% of respondents, is that they want to know more about Roth IRA conversions before making a decision.

Almost a third of respondents (30%) indicated they want to speak to a professional before making a decision, and of them, 76% want to talk to their tax adviser first.

An October survey for the First Command Financial Behaviors Index found 84% of middle-class consumers are not even aware that a new Roth conversion law goes into effect on January 1, lifting the $100,000 income limit and allowing investors to pay the resulting tax bill over a two-year period (see “Consumers Unaware of Roth Conversion Law Changes”). Even after being informed of the pending law change, only 6% of survey respondents indicated they plan to pursue a Roth IRA conversion.

TD AMERITRADE pointed out there are many indefinite variables—like future tax rates and the state of the economy—to think about before converting to a Roth IRA. Eighty-six percent of survey respondents think it is at least somewhat likely that their income tax rate could be higher when they reach retirement age, and 36% believe it is at least somewhat likely that the government could take steps to reduce the national debt by changing the tax-deferred status of retirement accounts such as 401(k) plans and IRA accounts.