The opportunity that became available Jan. 1 for investors with more than $100,000 in annual income to convert their traditional IRA to a Roth IRA has gone largely unnoticed.

New LIMRA research indicates that 54% of current IRA owners and about three-quarters of all respondents said they didn’t know about the new Roth IRA conversion rule changes. The LIMRA consumer survey was taken in January.

Marie Rice

“We were surprised that few people were even aware of the change—especially since it opens the door to a large population who were previously unable to convert to a Roth IRA,” said Marie Rice, corporate vice president and director of LIMRA Retirement Research. “Yet, our findings are consistent with our previous consumer studies where we have found a lack of consumer education and understanding of financial planning opportunities—and consumers look to their advisors for education.”

The new Roth IRA conversion rule, which became effective Jan. 1, 2010, eliminates the $100,000 income threshold that previously existed and allows all taxpayers to convert their traditional IRAs and other eligible qualified retirement plans to a tax-free Roth. Also, the income taxes due when you make the conversion can be paid over two years instead of having to be paid all at once.

In LIMRA’s survey, 4 out of 10 of respondents said they owned an IRA, and of the 46% of IRA owners who were aware of the changes, most were more likely to have incomes greater than $75,000 or were 65 or older.  Females were more likely to be unaware of the rule change, according to LIMRA.

Given the tax implications, older investors may be leery of converting to a Roth IRA, but consumers aged 28-43 with an income of $75,000 or more may benefit from the new rules. Although LIMRA research has found that this population is more likely to have a financial advisor (about 60% of consumers aged 28-43 with more than $50,000 of household income or $100,000 of household investable assets use a paid financial advisor), many are still unaware of the changes.

The survey results point to an opportunity for financial service professionals, according to LIMRA officials.

“Advisors need to reach out to their clients to be sure they are aware of these new rules and the implications they may have on their financial plans,” Rice said. “Moreover, our industry needs to do more to reach out to the younger generations who could benefit from a financial portfolio that includes both pre-tax and after-tax vehicles.”