Roth IRAs: To convert, or not to convert? New tech helps answer the question

Technology providers and product companies have been rolling out Roth IRA conversion calculators in a bid to meet the expected needs of advisers and their clients ahead of some significant changes in conversion rules for next year.
JAN 21, 2010
Technology providers and product companies have been rolling out Roth IRA conversion calculators in a bid to meet the expected needs of advisers and their clients ahead of some significant changes in conversion rules for next year. Starting Jan. 1, higher-income clients will have the option of converting a traditional IRA or 401(k) to a Roth IRA. Currently, individuals whose modified adjusted gross income exceeds $100,000 are barred from doing a Roth conversion. But, as part of the Tax Increase Prevention and Reconciliation Act, which was enacted in 2006, the $100,000 cap will be lifted. So a Roth conversion calculator — whether found on the web or nestled in a more sophisticated financial planning software package — isn't a bad jumping-off point when trying to assess whether it makes sense for a client to direct retirement assets to a Roth IRA. But it is hardly the final word on the matter. That's because many calculators take a one-size-fits-all approach to retirement planning by making assumptions about a client's expected rate of return or tax bracket. Others minimize, or even ignore, factors as basic as inflation. To be sure, the Roth IRA conversion calculators found in planning software developed for advisers tend to be more sophisticated than those found for free on the web. Many of the more sophisticated calculators allow advisers to enter a client's individual tax rate or to make adjustments to assumed inflation rates. Most even allow advisers to vary withdrawal rates as the client ages. In the remainder of the newsletter we provide you additional information and links to many of the calculators we've covered or have been introduced to this year. Again, these range from simple, often limited tools available for free in the Freebies section to more advanced and comprehensive calculators found at the sites of custodians or financial planning software providers. Finally this is not meant to be an all-inclusive or exhaustive list of the tools available. There are literally dozens of similar tools available on the Internet from many types of sites and companies including product providers. We encourage advisers to share their experiences with Roth IRA conversion calculators, tools, and websites. You can weigh in on the tools in the comments section at the end of this story (please include e-mail address) or if you prefer e-mail comments to [email protected] In addition, InvestmentNews has a group for financial advisers on LinkedIn where we will post a discussion on the topic. Advisers who are LinkedIn members but not in the group may join for free: Simply search LinkedIn Groups for InvestmentNews and click on ‘request to join.' Click here to return to the INTech special Roth report

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