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Most boomers plan to keep their traditional IRAs intact instead of turning their tax-deferred savings into tax-free retirement income next year, a new survey concludes.
The survey finds that 73% of boomers who own an IRA are not planning to convert their traditional IRA to a Roth IRA in 2010, when the household limit of $100,000 in modified adjusted gross income is scheduled to be lifted. Investors who convert in 2010 can pay the tax bill over a 2-year period, points out USAA, San Antonio, Tex.
Investors who convert in 2010 can pay the tax bill over a 2-year period, notes USAA, the marketing name of United Services Automobile Association., a financial service firm providing insurance, banking and investment services to U.S. military and their families.
The upcoming Roth IRA conversion changes may be a silver lining for baby boomers with recession-battered IRAs. But 57% of those surveyed were not even aware that income limits on Roth IRA conversions are scheduled to be eliminated next year. And conversion plans are not more prevalent among high-income households—those who have a household income of $100,000 or more:
In addition:
● 62% don’t know the converted funds are subject to tax.
● Only 9% are planning to convert in 2010.
● Investors who have both a traditional and Roth IRA are 3 times more likely (15% vs. 5%) to convert than those who own a traditional IRA only.
● Younger boomers (aged 45-54) are more likely than those aged 55-64 to say they plan to convert their traditional IRA to a Roth IRA next year (11% vs. 5%), even though older boomers are more aware of the income limit changes than are younger boomers (41% vs. 26%).
● 67% of IRA owners aren’t aware that taxes would be due on converted funds. Of the 33% who know that taxes would be due, 11% don’t realize they can spread the tax bill over 2 years.