Fidelity® Reports Year-End Spike in Roth IRA Conversions as More Investors Look to Minimize Taxes in Retirement

New Survey Shows Opportunity to Educate Workplace Plan Participants on Potential Benefits of Roth 401(k)s and In-Plan Conversions

BOSTON--()--Fidelity Investments®, the No. 1 provider of Individual Retirement Accounts (IRAs) and workplace retirement savings plans1, reports that nearly one-third of its Roth IRA Conversions executed across its retail and advisor businesses in 2010 occurred during the month of December. As expected, Roth IRA conversion activity was up all year, with the firm experiencing a fourfold increase in Roth IRA Conversions in 2010 as compared to the year prior.

Awareness of the Roth IRA conversion opportunity has increased dramatically. In fact, a recent Fidelity survey2 of investors found a 25-point jump (40 percent vs. 15 percent) in awareness when compared to a similar study conducted in August 20093. This surge in awareness coincides with an increase in the number of investors who are looking for ways to minimize taxes in retirement (52 percent vs. 47 percent).

As investors’ overall financial pictures and related tax legislation became clearer at the end of 2010, demand for Roth IRA conversion guidance and service hit all time highs. With trained investment professionals and extensive online content and tools ready and available, the number of investors seeking guidance from Fidelity and completing a Roth IRA conversion also increased in 2010.

Key business data4 includes:

  • Total Conversions: Approximately 220,000 total Roth IRA conversions were completed in 2010, which represents more than a fourfold increase over 2009.
  • Age Analysis: Of the households that completed a Roth IRA conversion in 2010, 58 percent were customers age 50 or over.
  • Fidelity Roth Conversion Evaluator® Usage: More than 197,000 Roth Conversion Evaluator sessions were completed by investors and advisors in 2010, with 260,000 sessions since the calculator's launch in October 2009.
  • Fidelity.com Traffic: Visitors to Roth IRA conversion content on Fidelity.com nearly quadrupled in 2010, when compared to 2009. In fact, 62 percent of Roth IRA conversions in 2010 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, senior vice president, investor education, retirement and financial planning, Fidelity Investments. “We help investors understand if a Roth IRA may fit into their overall financial plans by first reviewing their needs and priorities for retirement with them. Based on their goals, we discuss how various potentially tax-efficient strategies ranging from investing, to income distribution and estate planning may improve their situation.”

New Roth Conversion Opportunity Available to Certain Workplace Plan Participants

A provision passed in late September 2010 as part of the Small Business Jobs Act of 2010 allows in-plan Roth conversions for certain eligible workers in a workplace savings plan with Designated Roth Accounts. This includes Roth 401(k), 403(b) and governmental 457(b) plans. With this new law in place, workplace plan participants are working to understand their potential in-plan Roth conversion options.

Fidelity has seen growing demand by plan sponsors for the Roth 401(k) offering and the conversion opportunity. As of December 31, 2010, 50 percent of large5 Fidelity-administered workplace savings plans now offer a Roth 401(k). Of those plans that offer a Roth 401(k) provided by Fidelity, approximately 7 percent currently now offer the ability to convert assets from non-Roth accounts within their plan.

Fidelity’s business mirrors the survey findings. In fact, half (53 percent) of workplace plan participants surveyed6 who had heard of a Roth 401(k) said their employer offered it as an option. Of those who indicated a Roth 401(k) was available within their plan, almost three-quarters (71 percent) were not sure if their employer offered the ability to convert existing assets to a Roth account within their workplace savings plan.

Investors Have Access to Wide Range of Roth IRA Conversion Guidance

Fidelity’s investment professionals have been trained to help both investors and workplace plan participants make informed decisions surrounding the Roth conversion opportunity either into a Roth IRA or a Roth 401(k) if one is available.

Fidelity offers a variety of education tools on Fidelity.com for investors who are seeking more information on Roth IRAs, including the IRA Evaluator (www.fidelity.com/tvr), which highlights the differences between Roth and Traditional IRAs, and the Roth Conversion Evaluator (www.fidelity.com/rothevaluator), which can help investors determine whether or not a full or partial Roth IRA conversion may make sense for them. Investors who decide to proceed with a full or partial Roth IRA conversion have the option of working with a representative or completing it on Fidelity.com.

These tools complement the ongoing Viewpoints articles and online content (www.fidelity.com/rothconversionhelp) that Fidelity provides on the topic. As well, Fidelity investment professionals can help guide investors through decision-making process on the phone at 1-800-FIDELITY or in person at any of the company’s 153 investor centers across the United States.

Fidelity workplace plan participants also can attend live onsite or Web-based workshops, through virtual 24X7 on-demand Web workshops.

Fidelity Offers Advisors Roth IRA Conversion Resources

To help advisors address the Roth IRA conversion with their clients, Fidelity offers advisors access to a comprehensive set of educational and decision-support resources, including an online Roth IRA conversion calculator that provides general information and comparisons regarding the various Roth and non-Roth IRA options. Advisors also have access to exclusive Roth IRA conversion materials.

“With so many investors looking at Roth IRAs for the first time last year, tax and financial advisors will continue to play an important role in providing help around conversions,” said Bob Leonhardt, senior vice president of wealth management products, Fidelity Institutional. “The Roth IRA conversion opportunity reinforced the importance of taxes in the retirement planning discussion and how providing potential tax-efficient strategies can help advisors deepen and expand client relationships.”

About Fidelity Investments

Fidelity Investments is one of the world’s largest providers of financial services, with assets under administration of nearly $3.5 trillion, including managed assets of $1.6 trillion, as of December 31, 2010. Founded in 1946, the firm is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and many other financial products and services to more than 20 million individuals and institutions, as well as through 5,000 financial intermediary firms. For more information about Fidelity Investments, visit www.fidelity.com.

Fidelity, Fidelity Investments, and Fidelity Investments and the Pyramid Design logo are registered service marks of FMR LLC.

Fidelity does not provide investment, legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.

Guidance provided by Fidelity is educational in nature, is not individualized and is not intended to serve as the primary or sole basis for your investment or tax-planning decisions. Please consult a tax advisor regarding your personal situation.

The Roth Conversion Evaluator is intended to serve as education and should not be construed as tax advice. Your circumstances are unique; therefore if you believe that you need personalized tax advice, you should consult a tax advisor. Because your circumstances will probably change over time, it is a good idea to review your financial strategy periodically to be sure it continues to fit your situation.

The IRA evaluator is an educational tool.

Fidelity Brokerage Services LLC, Member NYSE, SIPC
900 Salem Street, Smithfield, RI 02917

Fidelity Investments Institutional Services Company, Inc.
100 Salem Street, Smithfield, RI 02917

574636.1.0

© 2011 FMR LLC. All rights reserved.

1 Cerulli Associates Quantitative Update Retirement Markets 2010 and Cerulli Edge Retirement Edition, Fourth Quarter 2010.

2 Data were collected between 12/27/10 and 1/07/11, by Knowledge Networks and Data Star, Inc., through a national online survey of 888 retirement plan owners with household incomes of $100,000 a year or more.

3 Data were collected between 8/14/09 and 8/28/09, by Knowledge Networks and Data Star, Inc., through a national online survey of 800 retirement plan owners, half of whom have household incomes of $100,000 a year or more.

4 Fidelity business data from 2009 and 2010

5 Workplace savings plans with at least 25,000 participants

6 Data includes any Roth workplace retirement account, including 401(k), 403(b) 457 or 401(a).

Contacts

Fidelity Investments
Corporate Communications, 617-563-5800

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Contacts

Fidelity Investments
Corporate Communications, 617-563-5800