WINDSOR, Conn. Feb. 5, 2010—Fifty-four percent of current IRA owners and about three-quarters of all respondents said they didn’t know about the new Roth IRA conversion rule changes, according to a January 2010 consumer survey conducted by LIMRA.
“We were surprised that few people were even aware of the change—especially since it opens the door to a large population who were previously unable to convert to a Roth IRA,” said Marie Rice, corporate vice president and director, LIMRA Retirement Research. “Yet, our findings are consistent with our previous consumer studies where we have found a lack of consumer education and understanding of financial planning opportunities—and consumers look to their advisors for education.”
The new Roth IRA conversion rule, which became effective Jan. 1, 2010, eliminates the $100,000 income threshold that previously existed and allows all taxpayers to convert their traditional IRAs and other eligible qualified retirement plans to a tax-free Roth. The income taxes due when you make the conversion can be paid over two years instead of having to be paid all at once.
In LIMRA’s survey, 4 out of 10 of respondents said they owned an IRA. Of the 46 percent of IRA owners who were aware of the changes, most were more likely to have incomes greater than $75,000 or were 65 or older. Females were more likely to be unaware of the rule change.
Given the tax implications, older investors may be leery of converting to a Roth IRA but consumers aged 28-43 with an income of $75,000 or more may benefit from the new rules. Although LIMRA research has found that this population is more likely to have a financial advisor (about 60 percent of consumers aged 28-43 with more than $50,000 of household income or $100,000 of household investable assets use a paid financial advisor), many are still unaware of the changes. Increasing the number of people who are aware of the rule change through educational efforts would likely boost the proportion who say they will contribute or roll money.
In addition, those who were previously ineligible for a Roth conversion may not be aware of the changes or whether it would be financially advantageous to them.
“Advisors need to reach out to their clients to be sure they are aware of these new rules and the implications they may have on their financial plans,” notes Rice. “Moreover, our industry needs to do more to reach out to the younger generations who could benefit from a financial portfolio that includes both pre-tax and after-tax vehicles.”
LIMRA conducted a survey of 822 American adults on Jan. 15-19, 2010. The results were weighted to represent the general population of the United States.
Donna G. Sullivan, 860-285-7875, firstname.lastname@example.org
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LIMRA is a worldwide research, consulting and professional development organization that helps more than 850 insurance and financial services companies in 73 countries increase their marketing and distribution effectiveness. Visit LIMRA at www.limra.com