Fidelity^® Study Finds Over Half Of Investors With Old 401(K)s Are Uncertain If Assets Can Be Converted To Roth IRAs

Although Awareness of Roth IRA Conversion Opportunity Has Increased, Confusion Around Specific Conversion Details Remains

BOSTON – Fidelity Investments®, the No. 1 provider of workplace retirement savings plans and Individual Retirement Accounts (IRAs) , released a study  today that finds more than half (55 percent) of newly eligible investors who have old 401(k)s with former employers are not certain whether their assets can be converted to Roth IRAs. 

The survey of investors with both retirement plan assets at former employers and annual household incomes of more than $100,000 showed that awareness of the Roth IRA conversion opportunity has increased over the past six months, but is still relatively low.  Currently, 35 percent of respondents are aware of the Roth IRA conversion eligibility changes, which now allow investors at any income level to convert assets to a Roth IRA.  This is up from just 12 percent in a Fidelity survey conducted in August 2009 .  Investor’s knowledge of whether their 401(k) assets qualify for a Roth IRA conversion also has increased.  Nearly half (45 percent) now say they know whether or not such assets can be converted to an IRA versus only one third (33 percent) in 2009.

“The increase in awareness is promising, but there is still work to be done,” said Keri S. Dogan, senior vice president, Fidelity Investments.  “Because a Roth IRA generally offers a number of potentially favorable benefits, such as the opportunity for tax-free growth and withdrawals, and no minimum required distributions, the conversion opportunity may be an option worth exploring for those newly eligible.”

Top Barriers Cited to Converting Assets to Roth IRA from Workplace Plans
The survey also showed that while the majority of investors with 401(k)s at previous employers are aware of basic rollover options for their old workplace plans (rolling assets to a current employer’s workplace plan, rolling to an IRA, or cashing out), a lack of understanding around Roth IRA conversion details is keeping them from rolling their workplace plan assets directly into Roth IRAs.  When asked about the biggest barriers, one third (33 percent) said they do not understand the tax implications of converting to a Roth IRA and 22 percent are confused by the conversion process itself.

“Decisions around what to do with 401(k) assets left with a former employer can be complex and a bit overwhelming, but it’s important that investors consider all of their available options,” said Dogan.  “Fidelity has trained representatives that can explain investors’ rollover options and the conversion process and then help them determine which option may make sense for their individual needs.”

Intention to Convert Workplace Plans Increases with Awareness, Information
Although concerns remain, the survey showed providing basic information about Roth IRAs and the new conversion eligibility rules increased investors’ interest in the account.  Before being provided with any information, respondents were asked whether they had ever considered rolling 401(k) assets from a former employer to a Roth IRA.  Only one-quarter (24 percent) initially said they had done so.

Survey respondents were then given a detailed description of the benefits of a Roth IRA, including:  the potential for earnings to grow federally tax-free, if certain conditions are met ; the ability for contributions to be withdrawn penalty-free and tax-free at any time by the account holder or heirs; and the absence of required withdrawals at any age during the lifetime of the original owner.  They also were given information about the January 2010 conversion eligibility changes.  After receiving the information, nearly six in 10 (58 percent) said they would be likely to investigate converting their 401(k) with a former employer to a Roth IRA and half (50 percent) said they were considering rolling to one, but had not yet made a decision.

Fidelity Sees Record Interest in Roth IRA Conversions
Since January 1, 2010, Fidelity has experienced a significant increase in the number of Roth IRA conversions executed across its retail and advisor businesses.  The volume of Roth IRA conversions at Fidelity in the first quarter of 2010 was four times the level experienced in the same period of 2009.  Conversions to Roth IRAs directly from 401(k)s managed by Fidelity also increased, but represented a small percentage of the total conversions to date.

To help investors determine if a Roth IRA conversion may make sense for them, Fidelity has representatives who can help investors with the decision-making process both on the phone at 1-800-FIDELITY or in-person at any one of the 132 investor centers across the United States. 
 
Fidelity also offers several education tools on Fidelity.com, including:  an IRA Evaluator (www.fidelity.com/tvr), which explains the differences between Roth and Traditional IRAs; a Roth Conversion Evaluator (www.fidelity.com/rothevaluator), which helps investors determine whether or not a full or partial Roth IRA conversion makes sense for them in the context of their overall retirement plan; and Fidelity Viewpoints articles about Roth IRA conversions that provide clear guidance on the topic (www.fidelity.com/viewpoints).  For investors who decide to convert, Fidelity also offers the option of conducting a Roth IRA conversion over the phone or using new functionality on Fidelity.com that allows them to easily complete a full or partial Roth IRA conversion online.  Information about workplace plan rollover options is also available at:  www.fidelity.com/rolloveroptions.

About Fidelity Investments
Fidelity Investments is one of the world's largest providers of financial services, with assets under administration of more than $3.3 trillion, including managed assets of $1.5 trillion, as of March 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 the Pyramid Design logo are registered service marks of FMR LLC. 

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.
 
The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice.Fidelity does not provide legal or tax advice.  Always consult an attorney or tax professional regarding your specific legal or tax situation and to more fully understand the regulations surrounding conversions. 

The Fidelity Roth Conversion Evaluator is intended to serve as education and should not be construed as tax advice. 

The results of the Fidelity Rollover Roth IRA Conversion Study may not be representative of all individuals meeting the same criteria as those surveyed for this study.
 
Knowledge Networks and Data Star, Inc., and Infogroup/ORC are independent companies and are not affiliated with Fidelity Investments.
 
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