Fidelity Investments reports that Roth IRA conversions soared up four-fold in 2010 from a year earlier primarily as a result of its investors seeking out and finding the educational information they need to help minimize their tax obligations in retirement.
Approximately 220,000 total Roth IRA conversions were completed last year as investors raced to take advantage of the increased contribution limit and their ability to spread out tax liability over 2011 and 2012, Fidelity officials said.
A huge chunk of those conversions took place in December, roughly one-third of Fidelity's total conversions for the year, as financial advisors ramped up their education and sales efforts to get new or existing clients to jump on the Roth bandwagon by moving their 401k or traditional IRA accounts.
"The numbers speak for themselves," Fidelity spokesman John Eidson said. "They speak to the concerted and heightened effort on the part of advisors to educate clients about Roth IRAs an explaining why now might be a good time to convert."
An internal Fidelity survey found that 40% of investors became aware of the Roth IRA product by the end of the year, up from just 15% in August 2009, a development the firm attributes to investors' increasing interest in finding ways to minimize taxes to offset the at least some of the additional expenses retirees can expect to incur once they've stopped working.
Among households that completed a Roth IRA conversion last year, 58% were 50 years of age or older.
Fidelity officials also attributed the sharp increase in conversions to its online Roth Conversion Evaluator tool which provides educational material and investment advice to investors who are mulling whether or not a Roth IRA makes sense for their particular investment plan.
Traffic growth to its Fidelity.com website grew in lockstep with its conversion rate, nearly quadrupling in 2010. More than 62% of all Fidelity IRA conversions were completed online.
"For many investors, whether or not to convert to a Roth IRA is just the beginning of the discussion on potential ways to maximize their assets by minimizing taxes in retirement -- and we expect these conversations to continue into 2011," said Chris McDermott, Fidelity's senior vice president, investor education, retirement and financial planning.
Fidelity and other firms got a boost this year in September when provision of the Small Business Jobs Act of 2010 opened the door for in-plan Roth conversions for eligible employees in a workplace savings plan with designated Roth accounts.
Now more than half of the large Fidelity-administered workplace savings plan now offer a Roth 401k and, of that group, about 7% now provide the opportunity for investors to convert assets from non-Roth accounts within their plan.
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