Natixis Global Associates Survey Reveals Investors Have Limited Information, Harbor Misconceptions about Roth IRA Conversions

BOSTON-(Business Wire)-September 29, 2009 - Almost half of affluent American investors are unaware of an upcoming unique one-time opportunity in 2010 to convert tax-deferred retirement accounts into a Roth IRA, according to a recent nationwide survey sponsored by Natixis Global Associates (NGA). During this special conversion offer, the modified adjusted gross income limit of $100,000 will be waived for one year, making many more taxpayers eligible to convert to a Roth IRA.

As the last quarter of 2009 begins, the NGA survey results show many investors lack information or, worse, believe incorrect information about Roth IRAs. Twenty-eight percent of respondents incorrectly believe Roth contributions are tax deductible (they are not), and more than 70 percent are unaware that tax payments on 2010 Roth conversions can be spread over two years.

The 2009 NGA survey, conducted earlier this month by Mast Hill Consulting, Inc., polled over 800 affluent investors between the ages of 24 and 86 with investable assets ranging from $100,000 to over $3 million. The survey was designed to determine investors’ knowledge about the upcoming special Roth IRA conversion opportunity. In 2010, the IRS will allow eligible individuals to convert all or part of their traditional retirement accounts – such as a traditional IRA or a rollover IRA – to a Roth IRA. A conversion is usually reported as taxable income for the year in which it takes place. However, in the year 2010, investors will be permitted to split the conversion amount in half and report it as taxable income for tax years 2011 and 2012.

“This important conversion opportunity offers many more investors access to the significant benefits of Roth IRAs, but it is only available during 2010,” said Tracey Flaherty, senior vice president of retirement strategy at NGA. “Now is the time for investors to educate themselves about the Roth IRA conversion requirements and determine if it makes sense for them.”

Education initiatives around the Roth IRA conversion decision are both timely and important because, as the results of the NGA study show, many investors do not understand key aspects of Roth IRAs:

4 in 10 investors do not know that the accounts offer tax-free accumulation and tax-free qualified distributions
5 in 10 investors are not aware that they don’t have to pay a separate fee to convert an existing retirement account to a Roth IRA

According to the survey data, information about the Roth IRA conversion opportunity has not been easy to obtain. A majority of investors (63%) say they have not discussed the conversion opportunity with their financial advisor. Indeed, over a third of survey respondents say the media has been the key provider of information about the special 2010 Roth IRA conversion opportunity.

“Three factors have combined to create a perfect storm for the 2010 Roth IRA: decreased portfolio values, potentially lower incomes, and sidelined cash in investment accounts make the prospect of converting to a Roth IRA in 2010 extremely attractive to many investors,” said Flaherty. “With more than 13 million households representing over $1 trillion in retirement assets expected to be affected by this change,¹ advisors have a unique opportunity to help educate investors and earn the trust and respect of their clients.”

The survey results reveal that the generation of investors nearing or entering retirement may be more financially self-reliant than prior generations — underscoring the importance of their financial decisions. Nearly 6 out of 10 investors (59%) said they do not expect to receive an inheritance from their parents. Further, many (41%) have moved to a more conservative asset allocation in the wake of the financial crisis, while 67% have cut spending and 36% have increased savings. The special 2010 Roth IRA conversion opportunity gives many more Americans the opportunity to participate in an already popular tax-advantaged savings vehicle.

The Roth IRA was established by Congress as part of the Taxpayer Relief Act of 1997 to provide an attractive retirement savings vehicle for middle-income Americans. In 2008, nearly four out of ten U.S. households owned IRAs.² The key benefits offered by the savings vehicle are tax-free asset growth and distributions on a flexible schedule.

About Natixis Global Associates

Natixis Global Associates provides market-driven investment solutions to institutions, intermediaries and individuals worldwide. It is part of Natixis Global Asset Management.³ In the U.S., Natixis Global Associates includes Natixis Distributors, L.P. (member FINRA) and Natixis Asset Management Advisors, L.P. (a registered investment advisor). Both are located at 399 Boylston Street, Boston, MA 02116, www.ga.natixis.com

¹ Financial Advisor, January 13, 2009, “Roth Conversion Rule Changes Will Help Many Advisory Clients.”

² Investment Company Institute, Research Fundamentals, January 2009, Vol. 18, No. 1.

³ Headquartered in Boston and Paris, Natixis Global Asset Management’s assets under management totaled $668 billion (€476 billion) as of June 30, 2009.

The tax information contained herein is general in nature, is provided for informational purposes, and should not be construed as legal or tax advice. Natixis Global Associates does not provide legal or tax advice. Please consult an attorney or tax professional regarding your specific legal or tax situation.

Pursuant to IRS Circular 230, please be advised that, to the extent this communication contains any tax advice, it is not intended to be, was not written to be, and cannot be used by any taxpayer for the purpose of avoiding penalties under U.S. federal tax law.

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