Life Insurance Quotes Blog News: More than Half of IRA Owners Unaware of New Roth IRA Changes

About Fifty-four percent of today’s IRA owners and about three-quarters of all respondents said they have no clue about the new Roth IRA conversion rule changes, in a January 2010 consumer survey conducted by the Life Insurance and Marketing Research Association (LIMRA).

“We were surprised that few people were even aware of the change—especially since it opens the door to a large population who were previously unable to convert to a Roth IRA,” said Marie Rice, corporate vice president and director, LIMRA Retirement Research.

“Yet, our findings are consistent with our previous consumer studies where we have found a lack of consumer education and understanding of financial planning opportunities—and consumers look to their advisors for education.”

How Does the New Roth Rule 2010 Work?

The updated Roth IRA conversion rule, which became effective Jan. 1, 2010, effectively gets rid of the $100,000 income threshold that previously existed and allows all taxpayers to convert their traditional IRAs and other eligible qualified retirement plans to a tax-free Roth.  The income taxes due when you make the conversion can be paid over two years instead of having to be paid all at once.

In LIMRA’s January survey, 4 out of 10 of respondents said they owned an IRA. Of the 46 percent of IRA owners who were aware of the changes, most were more likely to have incomes greater than $75,000 or were 65 or older.

Given the tax implications, older investors are often skittish about converting to a Roth IRA but consumers aged 28-43 with an income of $75,000 or more may benefit from the new rules.

Younger People Are More Informed

LIMRA research has found that the surveyed aged 28-43 population is more likely to have a financial advisor (about 60 percent with more than $50,000 of household income or $100,000 of household investable assets use a paid financial advisor), but many are still unaware of the changes.

Increasing the number of people who are aware of the rule change through educational efforts would likely boost the proportion who say they will contribute or roll money.

Furthermore, those who were previously made ineligible for a Roth conversion may not be aware or educated of the changes or whether it would be financially advantageous to them.

“Advisors need to reach out to their clients to be sure they are aware of these new rules and the implications they may have on their financial plans,” notes Rice. “Moreover, our industry needs to do more to reach out to the younger generations who could benefit from a financial portfolio that includes both pre-tax and after-tax vehicles.”

LIMRA conducted a survey of 822 American adults on Jan. 15-19, 2010. The results were weighted to represent the general population of the United States.

More Power To Us,

Erwin Chua

The Life Insurance Quotes For Consumers Blog

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