Undo Date Nears for Roth Conversions

BOSTON (TheStreet) -- Although the deadline for doing so is fast approaching, a survey by Fidelity Investments has found that less than a third (30%) of investors who are newly eligible to complete a Roth IRA conversion are aware that they have the flexibility to "undo" the move.

If you opted for a Roth IRA conversion this year and are regretting the decision, you have until Oct. 15 to undo the move, a process called recharacterization.

In separate research, Fidelity found that in a year-over-year comparison, there has been a significant shift from older to younger investors making Roth IRA conversions.

The percentage of households with investors between the ages of 35 and 49 who completed a Roth IRA conversion has doubled -- 31% this year versus 15% last year. Conversely, the number of households aged 50 and over that completed conversions dropped to 55% from 75%.

The age group with the largest drop in Roth IRA conversions was retirees, those over the age of 65, with a 19% drop from last year to this year.

The government waived the $100,000 adjusted gross income cap for conversions to Roth IRAs as of Jan. 1. Roth IRAs differ from traditional IRAs in that they don't offer a tax deduction for making a contribution, but the balance grows without taxes, and there's no levy on withdrawals made in retirement.

"The removal of income restrictions opened the door for many investors to have access to this type of account for the first time," says Chris McDermott, senior vice president of investor education, retirement and financial planning for Fidelity. He called it "encouraging" to see investors in their 30s and 40s use Roth conversions as a potential hedge against higher tax rates in the future.

Those nearing or in retirement have additional concerns, including estate planning and the upcoming Medicare surtax, that could be influencing conversion decisions.

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