Fidelity introduces Roth IRA conversion tool for RIAs, brokers

Fidelity Investments introduced a free online Roth IRA conversion calculator Tuesday for its independent registered investment advisers and the broker-dealer clients that clear through National Financial Services LLC.

Fidelity Investments introduced a free online Roth IRA conversion calculator Tuesday for its independent registered investment advisers and the broker-dealer clients that clear through National Financial Services LLC.
Many technology providers and product companies have been producing the calculators of late in a bid to meet next year’s expected needs.
Starting Jan. 1, higher-income clients will have the option of converting a traditional individual retirement account or 401(k) to a Roth IRA. Currently, individuals whose modified adjusted gross income exceeds $100,000 are barred from doing a Roth conversion. As part of the Tax Increase Prevention and Reconciliation Act, which was enacted in 2006, the $100,000 cap will be lifted.
The Fidelity tool was developed internally by Strategic Advisers, the company’s internal investment adviser group and is meant to assist advisers in determining if converting retirement assets to a Roth IRA makes sense within the context of the client’s overall retirement plans. The application was built using the Adobe Flex open-source framework, which allows it to run on all major browsers.
John Knapp, vice president of investment products at Fidelity, explained during a demonstration of the tool that much of the design and development work followed discussions with customers and advisers on Fidelity’s user forums. Those talks were aimed at getting an understanding of the key questions advisers were being asked about Roth and the conversion process.
“We think we’ve built something that’s intuitive, visually appealing and useful that can be part of a broader discussion between an adviser and their client,” he said.
The key inputs for the calculator are a client’s age in year of conversion, whether the client has a spouse, the state of residence, tax-filing status, estimated total household income, eligible account balances and whether eligible balances include any after-tax contribution.
“One of the things we think is a differentiator in our tool is how it takes into account the current marginal tax rate, which can be adjusted,” Mr. Knapp said. The tool provides a pop-up box with an explanation for the adviser and client of why they might need to adjust this depending on their situation and where they live.
At the end of the calculation process, a summary-and-analysis page is displayed that shows whether a conversion makes sense for the client and how much additional income they will have (or not have) following a conversion.
Estimated conversion taxes paid from taxable accounts is displayed as well as the estimated marginal federal and state tax rates that went into the calculation. A hypothetical fixed annual rate of return after adjusting for inflation is also displayed, as is a side-by-side chart that illustrates the hypothetical total value of withdrawals based on both converting the IRA and non-conversion.
For more information on the tool, visit Fidelity Institutional Wealth Services online.