Will the American Taxpayer Relief Act’s scheme to raise tax revenue by allowing 401(k) participants to more easily convert to Roth plans actually net the government the amount projected — $12 billion over the next 10 years?
Early indications are not good. Some providers, like Charles Schwab, are reporting tepid interest. Others, like Vanguard, are receiving keen interest, but only from plans that were already set up with Roth capabilities. As previously reported, some plans are waiting until the dust settles and the rules are clarified.
Why are plans and participants reluctant? Some are not sure whether the math favors converting, and the complexity of the conversion process is scaring others. Meanwhile, most plans are not making Roth conversions a priority — focusing instead on participation, deferral and asset allocation funds like TDFs.
All this probably illustrates the truism that when rules and laws are not prompted by public demand, there’s generally a good reason why — there isn’t any.
