Fidelity Investments and Bank of America reported this week that conversions were way up over last year, while advisers at smaller outfits are also seeing an uptick in interest in Roth accounts
Apparently, an income tax hit wasn’t enough of a deterrent to dissuade thousands of taxpayers from converting to Roth IRAs during the first quarter of the year.
Fidelity Investments this week reported that its clients converted some 58,000 individual retirement accounts to Roth IRAs over the first three months of the year, up four times from the comparable period in 2009.
A comparable increase in activity also took place at Bank of America Merrill Lynch. That company said today that some 15,000 Roth IRA conversions took place among its clients during the first quarter, well up from 3,600 for the first quarter in 2009. In fact, the number of conversions in the first three months outstripped the amounts of conversions at BofA during all of 2009 — which had 11,000 transactions.
The 2010 tax year is the first in which investors making $100,000 a year are eligible to convert assets to a Roth.
Advisers at smaller outfits are also seeing an uptick in interest in Roth accounts, which are taxable at the time of conversion but then grow tax-free. Micah Porter, president and chief executive at Minerva Planning Group, said that he’s gotten questions about IRA conversions from six or seven of his 65 clients. In past years, only one or two clients would ask about converting to a Roth. “We’re definitely seeing a pickup in terms of folks who consider conversions,” he said.
Granted, some of the investors get cold feet after seeing the tax bill. But those clients who do go forward typically put about half of their assets into a Roth.
The boom in IRA conversion activity ought to give advisers pause, observed Ben E. Norquist, president of Convergent Retirement Plan Solutions LLC. It’s not about the number of conversions, but rather the context of making the decision. “We’re missing the boat if we keep reporting on the number of Roth conversion transactions,” he said. “The opportunity is all about this critical decision that needs to be made.”
“Advisers can have just as much success in helping clients decide not to convert,” he added.
While there are advisers who sell clients on advisers without considering the consequences, just having the talk with clients can be profitable, Mr. Norquist added. For instance, it can set the stage for a partial conversion or uncover additional assets.
“There are advisers who are realizing the role they can play by doing a credible and legit analysis, helping clients make an informed decision on determining the level of the conversion or whether to convert anything at all,” he said.
