BOSTON (TheStreet) — Plug "Roth IRA conversion" into a search engine, and it will spit out online calculators and stories seeking to explain whether the move is worthwhile.
Major retirement-investment players — Fidelity, Charles Schwab (SCHW) (Stock Quote: SCHW), Vanguard and T. Rowe Price (TROW) (Stock Quote: TROW) — are setting aside space on their Web sites for the individual retirement account created in 1997 and named after its chief legislative sponsor, the late Sen. William Roth.
The companies are positioning themselves to be front and center for good reason. In addition to the value that a Roth conversion may provide for investors, financial advisers may be able to attract customers in what has become the hottest topic in retirement investing.
(SCHW) (TROW) Roth IRAs differ from traditional IRAs in several ways. While you don't get a tax deduction for making a contribution to a Roth IRA, those contributions grow without taxes and you don't have to pay any tax upon withdrawal in retirement. And Roth IRAs aren't subject to the same minimum distribution requirements that traditional IRAs are, so you can take out money when you want to.
(SCHW) (TROW) Starting on New Year's Day, investors will be able to move retirement assets, such as those from traditional IRA or 401(k) plans, to a Roth IRA regardless of their income level. The $100,000 salary cap will be waived. Whether the advantage of tax-free investment growth, as offered by a Roth plan, is more beneficial than paying taxes upon distribution is a question many people are having a hard time determining. For example, converting to a Roth IRA may not make sense if you can't afford to pay the upfront taxes. Conversely, a Roth plan might be a worthy hedge against a rising tax bracket.
In response, the firm has made an effort to load up its Web site with information about Roth conversions. Last week, joining its collection of fact sheets and how-to articles, the mutual-fund firm launched what it's calling a "Roth IRA conversion tool."
For existing Fidelity clients, much of the form is automatically populated using personal data, state-by-state tax statistics and actuarial tables.
In a recent survey, Schwab researchers found that more than a quarter of those polled described the conversion opportunity as "more confusing than health-care reform." Of the 400-person sample, only 14% said they were "extremely confident in explaining the Roth IRA conversion rule changes," and 71% said they would likely consult with a financial adviser. Forty-nine percent say they would consult a tax planner.
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