Beginning this year, the opportunity to convert individual retirement accounts and other retirement accounts into a tax-free Roth IRA will be greatly expanded.
Previously, only taxpayers with adjusted gross income (AGI) under $100,000 had this right. But with the AGI limitation lifted on January 1, a new group of taxpayers will be contemplating whether to take advantage of this opportunity. 
Recent studies suggest that the majority of clients who may benefit from these changes have no idea they exist. Arguably, the true opportunity with this impending rule change is not how many Roth conversions advisors complete but rather the opportunity to build client relationships through education.
Unfortunately, there is no general standard for which clients would benefit from a conversion and which would not.
Some advisors, tax professionals and attorneys see this as a tremendous opportunity for clients to hedge against inevitable increases in the income tax, create flexibility for retirement and enhance wealth transfer. Others see limited financial benefit from conversion, especially for those close to retirement. Additionally, advisors who believe they hold all of their clients' assets see conversions as a revenue loser from a pure assets-under-management perspective.
Clients might want to convert to a Roth IRA if they believe they will be in a higher income tax situation at retirement than at present. That can be because of personal economic factors or because they believe taxes will rise and they wish to hedge against this possibility by paying less now rather than more later.
Those seeking flexibility with their retirement assets should know that Roth IRAs have no required distributions. This is an especially important consideration for clients who may be concerned about outliving their assets, since retirement accounts are, by design, depleting assets.
Other clients who anticipate receiving Social Security but acknowledge that Social Security alone will not meet their income needs in retirement may find that the Roth provides a way to supplement these benefits. Not only are Roth distributions income tax free, but they also do not get added back to AGI when determining a modified AGI for taxation of Social Security purposes.
In addition, clients who have earmarked their retirement accounts for beneficiaries rather than their own use may want to consider a Roth conversion. Such clients would have no desire to take distributions and instead would like to enhance the wealth transfer. By converting a traditional retirement account such as an IRA or 401(k) to a Roth, the owner is in effect prepaying the income taxes for the beneficiaries and therefore enhancing the value of the asset going forward.
Clients who are unlikely to see a substantial benefit from a Roth conversion include those with a short time horizon before retirement (generally, 10 years or less), those who anticipate being in a lower tax situation in retirement than at present, and of course, those who simply do not have the assets to pay the income tax upon conversion.
A key reason why advisors must spend the time and effort to learn the rules and educate clients is retention of assets. Client satisfaction with advisors has been at an all-time low over the past year, and Roth conversion represents a perfect opportunity to reach out to them. Advisors who may not want to do this should keep in mind that plenty of other advisors will do so--and they will potentially capture these clients and their assets.
Another key reason is asset gathering. Beginning in 2008, the Internal Revenue Service started allowing participants in employer-sponsored plans such as 401(k)s, 403(b)s and 457s to convert directly to a Roth IRA as long as they meet the AGI limit and the triggering event requirement (e.g., separation from service or in-service withdrawal) that permits access to the assets. Many clients are unaware of this conversion option. This is a tremendous opportunity for advisors; they can show clients that not only does the employer-sponsored plan have options such as in-service withdrawals, but also that they have the opportunity to convert all or a portion of the plan assets to a tax-free Roth IRA.
The industry will see the true impact of conversions once 2010 ends. Until then, advisors have a choice to make: Risk having clients learn about this from other sources and seeing assets move elsewhere, or be the advisor who first presents this information to clients. If education truly is "power," then the advisors who choose to educate themselves and their clients will reap the benefits.
Jennifer L. Gugliotti, JD, LL.M, CFP, is assistant vice president, advanced planning attorney and field director with John Hancock Financial, Boston. Her e-mail address is jgugliotti@jhancock.com.
