Financial Planning | Organizational Development

Roth IRA conversion: Everyone into the pool!

Nestegg Heads up, financial planners: You've got more than a hangover to look forward to on New Year's Day.

Jan. 1, 2010 will bring with it new rules that will govern who is eligible to convert their retirement assets to Roth IRAs.

And what, precisely, is a Roth IRA? Here's what the IRS has to say:

Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. But, if you satisfy the requirements, qualified distributions (defined in Publication 590) are tax free. Contributions can be made to your Roth IRA after you reach age 70 1/2 and you can leave amounts in your Roth IRA as long as you live.

Traditionally, only those with modified adjusted gross incomes of $100,000 or less were allowed to make those conversations.

When 2010 dawns, though, that restriction will be lifted ... and according to WebCPA, that will mean a slew of potential new clients for finanical planners.

According to the WebCPA article, the folks at Charles Schwab recently interviewed 400 Americans who make more than $100,000 annually. Here's what they found:

"Only 14 percent indicate that they are extremely confident in explaining the Roth IRA conversion rule changes set to take effect, but 71 percent say they would be likely to consult with a financial advisor. Forty-nine percent say they would consult a tax planner."

"Nearly two-thirds (61 percent) of high-income Americans surveyed are unaware of the 2010 Roth conversion rule changes. Twenty-six percent of those who are aware of the conversion opportunity find it more confusing than health care reform."

"Thirty-four percent of respondents say that they are unsure of the general benefits of a Roth IRA versus a traditional IRA."

In short, there are a bunch of folks out there who want answers ... or any information at all.

And that's where all of you talented retirement planners come in.

Speaking of talented retirement planners, Natalie Choate, one of the nation's leading speakers on retirement planning, recently wrote an article about Roth IRA conversation for The Statement, the MACPA's member magazine. In it, she outlined four scenarios that illustrate how CPAs might be able to guide their clients through the conversion process.

She also suggests making the conversion early.

"The individual has until Oct. 15, 2011, to recharacterize (undo the Roth conversion) if he changes his mind, so there is little risk to converting early," Choate writes. "And the individual has until Oct. 15, 2011 (if he gets an extension on his 2010 income tax return) to decide whether to defer the income resulting from the conversion into 2011 and 2012 (an option available only for 2010 conversions) or to take it into income in 2010."

Learn more at our Advanced PFP Conference
Choate will lead a two-part session titled "Your Client's Retirement Benefits: Planning Opportunities and Compliance Pitfalls" as part of the MACPA's annual Advanced Personal Financial Planning Conference, slated for 8 a.m. to 4:35 p.m. on Oct. 30 at Martin's West in Baltimore. Get details and register here.


Bill Sheridan