Investors staged last-minute rush to Roth IRAs

Affluent clients of two large financial services companies converted billions of dollars held in conventional IRAs to Roth IRAs in 2010, particularly at the end of the year. Bank of America Corp., which executed more than 56,000 conversions for clients during the year, moved about $3.8 billion in assets to Roth individual retirement accounts. Much of the activity took place in December, when some 14,500 accounts were converted, accounting for about 26% of all 2010 conversions and $1.4 billion in conversion assets. The Vanguard Group Inc. reported similar activity. The company performed more than 230,000 Roth conversions last year, up 530% from 2009, with most of the transactions —33% — concentrated in December. Last year marked the first time that taxpayers earning more than $100,000 annually could convert to a Roth IRA, from which withdrawals are tax-free because contributions come from after-tax income. Regular IRAs and 401(k) plans, to which contributions are made with pretax dollars, require investors to pay taxes when the money is withdrawn. Converting conventional IRAs and 401(k) plans into Roths requires paying income tax on the amount being converted. Procrastination and a wait-and-see approach were likely behind the year-end activity, observers said. “You have some people who put it off,” said Mitch Drossman, national director of wealth-planning strategies at U.S. Trust Bank of America Private Wealth Management. “Others wanted to see what the tax picture would look like.” E-mail Darla Mercado at [email protected].