Survey shows investors are confused about 2010 Roth conversions
Posted on 29 September 2009
Permanent URL of this article: http://retirementrevised.com/money/survey-shows-investors-are-confused-about-2010-roth-conversions
Most experts have been forecasting a surge of Roth IRA conversions early next year, but it may not be in the cards after all, judging by new research from Fidelity Investments.
The expected impetus for the conversions from traditional tax-sheltered retirement account to Roths is a change in federal law next year that removes the household income limit for eligibility. Conversion has a number of strong selling points–as well as a few drawbacks, which I’ve detailed here.
But a Fidelity survey concludes that many investors don’t understand the benefits of Roth IRAs, and that 88 percent aren’t aware of the conversion opportunity created by the change in law. That’s an amazingly high figure, considering all the marketing muscle the mutual fund industry has put into Roth conversions.
A few specifics about the confusion on Roths that turned up in the survey:
. . .when asked about the biggest obstacles to converting, respondents cite their lack of understanding as the most significant barrier, but also listed others. For example:
–Approximately one third of investors indicate they do not understand a Roth IRA conversion’s tax implications (34 percent) or the tax structure of a Roth IRA itself (30 percent)
–Nearly a third (30 percent) say their balances are too small for a conversion or they lack sufficient funds (27 percent) to cover the conversion tax costs
–One in five (20 percent) do not believe a Roth IRA fits their needs
My speculation on what might be going on here: investors are so dismayed by the declines in their retirement accounts that they’re turned off to messages of any kind about their holdings–making it difficult for the marketing message about Roths to get through .
However, if you are ready to think about it, click here to learn more about Roth conversions.
October 2nd, 2009 at 9:39 am
In addition to investor dismay, I may just be clear ignorance. Unfortunately, large percentage of people simply trust their investor advisor to provide them with correct advice concerning retirement planning. It’s hard work informing yourself on how to invest, what to invest in, what’s bad, what’s good, etc. So a lot of people just forego the whole process and hire someone to work for them. As a result, you might see quite a few of the people in this survey perform a Roth IRA conversion anyway, because it’s recommended by their personal advisor. Just my two cents…