In 2010, US taxpayers with adjusted gross annual incomes in excess of $100,000 will be allowed to convert traditional IRAs to Roth IRAs - which are traditionally funded with non-deductible contributions, but which allow for tax-free withdrawals. In other words, people will be able to exchange IRAs, built with deductible contributions, and turn them into non-taxable sources of retirement income - once they pay tax on any earnings and pretax contributions.

Until now, few advisors have focused on Roth IRAs. Why would they have? With most high-net-worth individuals previously barred from funding them, the issue was moot for many their clients. 

A provision in the Tax Increase Prevention and Reconciliation Act of 2005 lifts the income restriction on Roth IRA conversion eligibility on 1 January 2010.  This little-publicized change opens the door to a tremendous tax planning opportunity for millions of people who now hold well over $1.4 trillion in tax-deferred IRA and defined contribution plan assets. 

There are several reasons high-net-worth investors may want to make the conversion. With asset values battered by the financial crisis, taxes levied on converted assets are likely to be lower. Converted assets come out tax-free, and in many cases, penalty-free. Roth investors can be more tax efficient in retirement by devising a tax-efficient withdrawal strategy for discretionary assets. Also, Roth IRA assets are not subject to required minimum distributions at age 70 and a half as traditional IRA assets are, allowing more flexibility to pass these on to the next generation. 

The Roth 2010 conversion opportunity isn't an “all or nothing at all” proposition, as many people think -- and many website “Roth analyzer” tools seem to imply. It’s instead a balance of several factors: future tax rate and life-expectancy assumptions, sources for conversion tax payment to name a few. These should be  weighed in determining an optimal conversion amount. 

Proper analysis of the Roth conversion option also shreds a favorite axiom: "never pay taxes  before you have to." With the 2010 changes, there are many scenarios in which paying the conversion taxes makes complete sense. 

With these benefits to high-net-worth investors, advisors have a ready-made business building approach if they choose to take advantage of it, as people with a high net worth will be inundated with opportunities to convert. And advisors who get to their own clients and prospects before the media turns in earnest to covering conversions will have positioned themselves as experts and taken an important marketing advantage. 

How can advisors take advantage of the tax-change law? First, they have to educate themselves about the change - what it is, how it works, who can benefit most and why. Once educated, advisors can put a plan in place to use this as a way to generate buzz and create a "Roth presence" in the marketplace. 

The savvy advisor will use the Roth changes:

• As a PR opportunity - Roth changes happen in 2010, but the press is writing about it now. Be the advisor to take a proactive stance on what’s happening and use this knowledge to stand out in a crowded market. This means writing articles for the local media of your target market, being interviewed on the radio and generally creating awareness around Roth changes. Review your client base and find opportunities to speak at clubs, meetings, etc. to share their knowledge of the change and its impact.
• As a client retention strategy - Many advisors hope they have all of the assets for any given client, but suspect there may be more elsewhere the client hasn’t disclosed. The Roth discussion offers a built-in reason to inquire about all of the retirement holdings for your client. Meet with existing clients and review their plans, talk about their retirement approach and discuss the impact of different scenarios. This will lead to a deepening relationship and even if no conversion takes place, the dialogue helps build your credibility with the client.
• To generate client referrals - Conventional wisdom holds that an advisor can’t simply ask for referrals; they have to have something of value to offer in exchange. Offering a free review of retirement assets and then providing insights about conversion possibilities might be seen as valuable. Structure a seminar around the Roth change, invite clients and those they might refer to you, and schedule follow-up meetings with each attendee to review their retirement portfolio.