ROTH AND ROLL

To Roth or not to Roth – that is the question. A boon for mutual fund companies and financial planners, the Roth individual retirement account was introduced in 1998 to inspire greater savings among boomers and younger people.

If you have a Roth IRA, Uncle Sam won’t tax what you take out when you retire. But there’s a price: he also won’t let you deduct your contributions. And if you want to convert, you have to pay taxes on what you’ve already built up.

The conversion deal is offered only to taxpayers with less than $100,000 in adjusted gross income, but since there’s plenty of those folks, there was lots of debating over the Roth’s merits.

Planners pondered whether, given the upfront tax bite, conversion was financially advantageous. But as the year drew to a close more clients decided to take the plunge by converting at least some of their IRA funds. Fueling the move was the government’s one-year offer to allow investors to spread the tax bite over the next four years. The problem for planners all along has been that most of their clients have incomes above the limits for converting funds or even the higher limits for making contributions to Roth plans, while many clients with incomes that fall within the limits do not have enough money to pay hefty tax bills if they convert their old-style IRAs.

The result has been that younger clients with smaller IRAs have turned out to be the best prospects for conversion. But contrary to initial expectations, many older IRA holders are using Roths as estate-planning tools.

Unlike with traditional IRAs, there is no requirement that withdrawals be made by age 70?, and accounts can be passed on to heirs.