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Investors Make Dash to Convert to Roth IRAs

Financial services: The surge in requests has some companies worried they won't make the Dec. 31 deadline.


After months of procrastination, investors are finally lining up to convert their individual retirement accounts to new, tax-advantaged Roth IRAs.

But the sudden popularity has some brokerages, mutual funds and banks worried that they won't be able to process all the conversion requests by a key Dec. 31 deadline.

Discount broker Charles Schwab Corp. received 15,000 conversion applications in the last week, about 10 times September's weekly volume. Calls and investor visits have soared at mutual fund giant Fidelity Investments, which fielded 11,000 Roth-related phone calls in the last week, compared with 2,500 six months ago.

"Within the last week we've seen a pretty steady lining up [at Fidelity Investment Centers] of people wanting to do the paperwork," said Monique Oliveaux, a Fidelity spokeswoman. "Our investment center managers are reporting back-to-back appointments for the next week."

Daily conversion volume at Bank of America this week is four times the average during the first 10 months of the year, said Deepak Ganju, manager of BofA's retirement products service center. The bank increased its Roth conversion staff by 25% last month in anticipation of the last-minute rush.

But some financial services companies are concerned that they might not be able to handle the demand. Conversions can take several days to more than a week to process, leaving last-minute filers at risk of losing a special tax treatment that would allow them to spread income from the conversion over four years.

Mutual fund company Vanguard Group said it may not accept applications after Dec. 24. Schwab and Fidelity set a Dec. 15 cut-off; both are still making exceptions for latecomers, but they may stop if the number of requests continues to soar.

"We don't want to have uncompleted requests" on Dec. 31, Fidelity's Oliveaux said.

Roth IRAs allow investors to make tax-free withdrawals in retirement, in contrast to withdrawals from regular IRAs, which are taxed. Investors can convert existing IRAs to Roths, although they must pay income taxes on the amount that's converted.

Conversions before Jan. 1 allow, but do not require, investors to spread the income and the resulting taxes over four years. Investors can still make conversions after the Dec. 31 deadline, but the entire tax bill must be paid in a single year.

Conversions make the most sense for younger people, people who will be in the same or higher tax bracket in retirement and people who will not need to touch their retirement funds for at least five years. Wealthy investors also can take advantage of Roths, which have no minimum distribution requirements, to pass money to their heirs.

Not everyone is a candidate for a conversion. Single people or married couples with adjusted gross incomes over $100,000 are not allowed to convert their IRAs to Roths. Financial planners say people who cannot afford to pay the resulting taxes without dipping into IRA funds should not convert.

Regardless of whether they convert existing IRAs, most investors can still make a nondeductible contribution to a new Roth account. Married couples with adjusted gross incomes under $150,000 and singles with AGIs under $95,000 can make a full $2,000 Roth contribution. The deadline for opening and funding a new Roth account for 1998 is April 15.


Liz Pulliam can be reached by e-mail at For more information on Roth IRAs, visit the Times' Web site at

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