More Than One-Third of Eligible Investors Working with Tax Advisors Are Expected to Complete a Roth IRA Conversion by Year End, According to a New Fidelity® Study

BOSTON--(EON: Enhanced Online News)--A Fidelity Investments^® study¹ finds 40 percent of investors working with tax advisors are now eligible to take advantage of the recent removal of income limits for Roth IRA conversions, up from just 13 percent last year. More than a third (35 percent) of these clients are expected to complete a conversion by year end. These findings correspond with Fidelity figures that show a surge in investor interest in Roth IRA conversion guidance in January.

“With so many investors looking at Roth IRAs for the first time, this research demonstrates the valuable role that tax and financial professionals can play in providing guidance around conversions”

Building off the launch of its Roth Conversion Evaluator last year, Fidelity continues to add new educational resources to help the growing number of investors and advisors who are evaluating a Roth IRA conversion and considering tax-diversification strategies. This month the firm is introducing a new “Tax-Smart Investing” seminar at its Investor Centers across the U.S., as well as new educational content on Fidelity.com and Fidelity WealthCentral^®, its technology platform for independent financial advisors.

The survey of nearly 500 tax advisors found advisors believe that 43 percent of their clients would benefit from a Roth IRA conversion, given two-thirds (66 percent) of advisors also think income taxes will generally rise in the future. Most (88 percent) advisors also expect discussions with their clients about Roth IRA conversions will increase during the next six months. This interest mirrors Fidelity’s internal data that shows nearly 1,000 investors and advisors each day are using the Roth Conversion Evaluator, a tool that helps them consider whether a Roth IRA conversion may make sense for them. In addition, traffic to Roth IRA conversion content on Fidelity.com was up sevenfold in January 2010 compared with the same month last year.

“As this is a complex decision, it’s encouraging that investors are engaging financial services providers and tax advisors to develop an overall retirement plan and discuss the potential benefits of a Roth IRA conversion,” said Chris McDermott, senior vice president, investor education, retirement and financial planning, Fidelity Investments. “Fidelity believes investors should consider a variety of tax strategies when saving for retirement, including a Roth IRA, which offers tax-free growth potential and withdrawals at retirement, if certain conditions are met.”

Investor Education Spurs Intention Rates for Roth IRA Conversions

When examining who initiated Roth IRA discussions, tax advisors say they started the conversation more than half (59 percent) of the time. Of these discussions, 57 percent of their clients were hearing about the opportunity for the first time. While interest levels are high (89 percent) after these conversations, advisors say their clients express some reservations about converting to a Roth IRA, with the biggest being the potential tax costs.

Dealing with the resulting taxes from a Roth IRA conversion is a key consideration that investors need to weigh. In most cases, Fidelity believes that investors should avoid using proceeds from the conversion to pay the tax costs because it reduces the amount that can potentially grow federally tax free and could offset any tax savings gained by converting. However, according to the survey, half of tax advisor clients are planning to pay for a Roth IRA conversion from the account being converted.

Of the 35 percent of clients who are expected to complete a conversion by year end, advisors report the majority (91 percent) have already started or completed the process. Nearly half (44 percent) of the conversions are $50,000 or more. These survey findings parallel client actions observed in Fidelity’s retail and advisor businesses, where the number of Roth IRA conversions in January 2010 surpassed previous conversion numbers for January by more than four times.

According to the survey, among tax advisor clients who are likely to convert to a Roth IRA this year, half will be converting all eligible assets from accounts such as a Traditional IRA or 401(k) with a former employer. The majority (54 percent) plan to take advantage of the one-time opportunity this year to split the taxable income between their 2010 and 2011 tax filing years. Fidelity believes that investors should carefully consider the pros and cons of spreading the tax bill from a conversion over two years, as an investor’s tax rate or income could go up, which would result in a higher tax liability.

“With so many investors looking at Roth IRAs for the first time, this research demonstrates the valuable role that tax and financial professionals can play in providing guidance around conversions,” said Ronald P. Fiske Jr., executive vice president, Fidelity Institutional Wealth Services^®. “It also highlights the importance of taxes and estate planning in the Roth IRA conversion discussion and how providing sound tax-efficient strategies can help deepen and expand client relationships.”

New Seminar and Online Content Focuses on Tax Efficiency

To help educate investors on the potential benefits of building a tax-diversified retirement portfolio, Fidelity is launching a new ‘Tax-Smart Investing” seminar in March. The seminar, which will be offered at Fidelity’s investor centers across the United States, covers three primary principles, including:

Choosing a savings strategy based on an assessment of your current and anticipated future tax rates;
Selecting the appropriate saving vehicles (e.g., IRA, Roth 401(k)) for the saving strategy, taking into account the different tax advantages those vehicles provide; and
Matching investments with the appropriate vehicles, considering the tax treatments and expected rates of return that those investments may present.

To determine when and where this seminar will be presented, investors can log onto www.fidelity.com/taxcenter.

In addition, Fidelity has published a new Viewpoints article on Fidelity.com that specifically addresses tax-efficient strategies for investors, regardless of whether they are saving for retirement or already retired. The article provides guidance on how to customize a tax strategy and helps address the critical question of when an investor should pay taxes on retirement assets. The article is available at www.fidelity.com/taxviews.

The new seminar and Viewpoints article reinforces Fidelity’s ongoing commitment to provide resources and guidance to help investors make informed decisions about whether and how to convert to a Roth IRA. Other resources include robust content on Fidelity.com, guidance from Fidelity’s financial representatives, the Roth Conversion Evaluator (www.fidelity.com/rothevaluator), and new functionality that allows investors to easily complete a full or partial Roth IRA conversion process online.

Fidelity Offers Advisors Access to Roth IRA Conversion Resources

To help advisors address the Roth IRA conversion with their clients, Fidelity offers advisors access to a comprehensive set of educational and decision-support resources. Late last year, Fidelity introduced an online Roth IRA conversion evaluator for advisors that provides general information and comparisons regarding the various Roth and non-Roth IRA options. Advisors also have access to exclusive Roth IRA education fact sheets and Roth IRA conversion materials (e.g., brochures and presentations). Clients of Fidelity Institutional Wealth Services interested in learning more about the Roth conversion resources should contact their relationship manager, while non-clients can contact IWS at 1-800-735-3756.

About Fidelity Investments

Fidelity Investments is one of the world's largest providers of financial services, with assets under administration of nearly $3.2 trillion, including managed assets of nearly $1.5 trillion as of January 31, 2010. Fidelity offers investment management, retirement planning, brokerage, and human resources and benefits outsourcing services to over 20 million individuals and institutions as well as through 5,000 financial intermediary firms. The firm is the largest mutual fund company in the United States, the No. 1 provider of workplace retirement savings plans, the largest mutual fund supermarket, a leading online brokerage firm and one of the largest providers of custody and clearing services to financial professionals. For more information about Fidelity Investments, visit www.fidelity.com.

Fidelity, Fidelity Investments and the Pyramid design logo, Fidelity Institutional Wealth Services, and Fidelity WealthCentral are registered service marks of FMR LLC.

The results of the Fidelity Tax Advisor Roth IRA Conversion Study may not be representative of all tax advisors or their clients meeting the same criteria as those surveyed for this study. Data Star, Inc. is not affiliated with Fidelity Investments.

Fidelity does not provide investment, legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.

The Roth Conversion Evaluator is intended to serve as an educational tool and should not be construed as tax advice. Your circumstances are unique; therefore if you believe that you need personalized tax advice, you should consult a tax advisor. Because your circumstances will probably change over time, it is a good idea to review your financial strategy periodically to be sure it continues to fit your situation.

Clearing, custody or other brokerage services may be provided by National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC.

Fidelity Brokerage Services LLC, Member NYSE, SIPC
900 Salem Street, Smithfield, RI 02917

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¹ Data was collected between 01/27/10 and 02/01/10, by Data Star, Inc., through a national online survey of 493 tax advisors