According to Survey Investors Lack Understanding of Roth IRAs and Majority Do Not Currently Plan to Take Advantage of New Conversion Rules in 2010
Public Company Information:
SAN FRANCISCO--(BUSINESS WIRE)--In less than 90 days many investors will have a new IRA opportunity when the income restriction for converting to a Roth IRA is lifted. The rule change will make all investors eligible to convert assets from certain retirement savings accounts, such as a traditional IRA or a 401(k) with a previous employer, to a Roth IRA, regardless of income level. Until January 1, 2010, only people with modified adjusted gross incomes of $100,000 or less are eligible to convert.
A recent survey from Charles Schwab & Co., Inc., finds that nearly three fourths (72 percent) of Americans making more than $100,000 annually are not planning to convert to a Roth IRA, despite the pending changes in eligibility. But a lack of certainty about the benefits of a Roth IRA and confusion over the pending Roth IRA conversion rule changes appear to be leading a significant number of investors to seek help and guidance from professional advisors. Of the 400 Americans with incomes of $100,000 or more surveyed, only 14 percent indicate that they are extremely confident in explaining the Roth IRA conversion rule changes set to take effect, but 71 percent say they would be likely to consult with a financial advisor. Forty-nine percent say they would consult a tax planner.
“While the Roth IRA conversion rule changes will present an opportunity for certain investors, people should weigh the costs and the benefits unique to their own specific situation before deciding if a conversion is right for them,” said Bryan Olson, CFA, vice president, head of portfolio consulting for Schwab. “At Schwab, we are seeing an increasing number of people asking us whether or not they should consider converting to a Roth IRA. We are also proactively reaching out to clients on the topic, because we know that the majority of people are unaware of the pending rule changes.”
Olson added, “At Schwab, we are using this opportunity to talk with investors about how a Roth IRA might fit into their broader retirement savings strategy, which is the long-standing approach we have always taken when consulting clients on a variety of financial topics.”
Additional key findings in the Schwab survey include:
“Two common reasons for people to consider converting to a Roth IRA are to achieve a greater ending portfolio value or to capture estate planning benefits, but there are some additional factors to take into account,” noted Olson. “For example, converting to a Roth IRA probably doesn’t make sense for people who can’t afford to pay the resulting income taxes out of other savings.”
Key Roth IRA conversion considerations include:
Additional tools and online resources including a Roth IRA Conversion Calculator, Roth IRA conversion Q&As, and key considerations for Roth IRA conversions are available on Schwab’s Roth-dedicated site: www.schwab.com/roth. Schwab will continue to add information and resources to the site as the January 1, 2010 conversion rule change date approaches.
This information is for general information purposes only and is not intended as a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends you consult with a qualified tax advisor, CPA, financial planner or investment manager.
About the Survey
The Charles Schwab Roth Survey was conducted by Kelton Research between September 3 and September 14, 2009 using Random Digit Dialing of listed and unlisted numbers. Results of any sample are subject to sampling variation. The magnitude of the variation is measurable and is affected by the number of interviews and the level of the percentages expressing the results. In this particular study, the chances are 95 in 100 that a survey result does not vary, plus or minus, by more than 4.9 percentage points from the result that would be obtained if interviews had been conducted with all persons in the universe represented by the sample.
About Charles Schwab
The Charles Schwab Corporation (Nasdaq:SCHW) is a leading provider of financial services, with more than 300 offices and 7.6 million client brokerage accounts, 1.5 million corporate retirement plan participants, 646,000 banking accounts, and $1.3 trillion in client assets. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through its Advisor Services division. The Charles Schwab Bank (member FDIC) provides banking and mortgage services and products. More information is available at www.schwab.com. (1009-11271)
© 2009 Charles Schwab & Co., Inc. All rights reserved. Member SIPC
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