The Kestner Team

Sticking to Tradition - Baby Boomers Have Few Roth IRA Conversions Planned in 2010

RISMEDIA-While the upcoming Roth IRA conversion changes may be a silver lining for Baby Boomers with recession-battered IRAs, a new survey by financial services company USAA found that most baby boomers plan to keep their Traditional IRAs intact instead of turning their tax-deferred savings into tax-free retirement income next year.

According to the survey, the majority (73%) of Baby Boomers who own an IRA are not planning to convert their Traditional IRA to a Roth IRA in 2010, which is when the household limit of $100,000 in modified adjusted gross income is scheduled to be lifted. Any investor who converts in 2010 can pay the tax bill over a two-year period.

The survey also found that conversion plans are not more prevalent among higher-income households that benefit from the income limit changes.

For respondents who own an IRA and have a household income of $100,000 or more:

• More than half (57%) are not aware that income limits on Roth IRA conversions are scheduled to be eliminated next year.
• Two-thirds (62%) are not aware that the converted funds are subject to tax.
• Only nine percent are planning to convert in 2010.

"There may never be a better time than in 2010 to create a tax-free income stream for retirement," said Terri Kallsen, senior vice president, USAA Wealth Management. "The combination of lower account values, historically low income-tax rates, conversion income limits lifting and the ability to pay the tax bill over two years provides a rare opportunity to potentially increase your income in retirement by hundreds, and even thousands, of dollars each month by eliminating taxes through a Roth IRA."

Some investors appear more likely than others to take advantage of the conversion changes next year, including:

• Investors with both a Traditional and Roth IRA are three times more likely (15% vs. 5%) to plan on converting than those who own a Traditional IRA only.
• Younger Boomers (aged 45-54) are more likely than older Boomers (aged 55-64) to say they plan to convert their Traditional IRA to a Roth IRA next year (11% vs. 5%), even though older Boomers are more aware of the income limit changes than younger Boomers (41% vs. 26%).
• However, most (67%) IRA owners surveyed aren't aware that any taxes would be due on converted funds. Of the one-third (33%) who are aware taxes would be due, one in ten (11%) didn't realize they would have the ability to spread the tax bill over two years.

"While a Roth IRA conversion may not make sense for everyone, it's important to understand the options available and the implications of taking, or not taking, action," said Kallsen. "Working with a salaried, credentialed financial planner can help you determine the best decision for your situation."

For more information, visit www.usaa.com.

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