In January investors in retirement plans with incomes over $100,000 will for the first time have the opportunity to convert their individual retirement accounts, or IRAs, to Roth IRAs. But there seems to be few takers.

A survey by TD Ameritrade of 1,000 retail investor clients found that 44% of those with a retirement savings account that could be converted to a Roth IRA said they are still undecided on whether they would convert.

As of Jan. 1, all investors—not just those with adjusted gross income under $100,000—will be able to convert retirement assets to Roth IRAs. This means paying taxes now but not being taxed on gains and withdrawals as long as the investor is over 59-years-old or has waited five years since converting to a Roth. With traditional IRAs, earnings and any pre-tax contributions are taxed as ordinary income when withdrawals are made. In addition, with traditional IRAs, investors must begin taking money out of the accounts after they hit age 70. With Roth IRAs they do not. The concern for many investors is that to convert to a Roth IRA means paying taxes upfront on those assets they move. Yet for those that bet on higher tax rates in the future, the conversion to a Roth makes sense.

Eighty-six percent of respondents to the TD Ameritrade survey believe it is at least somewhat likely that their income tax rate could be higher when they reach retirement age. And 36% believe it is at least somewhat likely that the government could change the tax-deferred status of retirement accounts such as 401(k) plans and IRA accounts to pay down the soaring national debt.
 
“At the end of the day, that’s what this is about—taxes now versus taxes later,” said Diane Young, the director of retirement and goal planning at TD Ameritrade. “Our focus is to provide them with the information, tools and resources they need so that when they do go to their tax advisor, they go equipped with knowledge about the rules around IRAs, and how this planning strategy applies to their own personal situation.”
 
A plus for financial advisors is that talking to clients about converting to a Roth IRA may be the first step in encouraging clients to consolidate other accounts.

Interested in reading more about the Roth IRA Issue? Check out the Roth Conversion Center