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Many people saw their market accounts plunge as much as 60% in 2008, making them skittish about parting with their cash now. "It's the rare CPA that's actually telling people to do the conversion because they don't think their clients should pony up the money now either," says Losey.
However, Kilday says the market downturn could actually work in someone's favor, as the person would be paying less tax on a beaten-down portfolio of IRA assets than if the value of the IRA were larger.
The big surprise in all this, Kilday says, is the number of people who believe tax rates will be lower when they retire. "This is the third lowest set of tax brackets we've had since the advent of the income tax in 1913," he says. And with the deficit growing, "I don't think Congress will be able to justify lowering them anytime in the future." Income-tax rates on ordinary income are slated to rise in 2011 to pre-2001 levels of 15%, 28%, 31%, 36% and 39.6%. That's up from current rates of 10%, 15%, 25%, 28%, 33% and 35%.
Still, some cynical investors are worried that the cash-strapped government might change the rules down the line and pass legislation taxing Roth IRAs. After all, the federal government already showed it could renege on tax promises when it passed laws to start taxing Social Security benefits after promising it wouldn't.
"Nothing is written in stone, and certainly nothing is guaranteed anymore. I wouldn't put it past them that at some point they might want to change the rules around," says Losey. "There are so many unknowns and variables that people feel more content holding on to what they have now rather than gambling on what the government may or may not do down the road."
Leonard speculates there would be "total Armageddon" in the streets if the government suddenly reversed itself and started taxing Roth distributions. However, the government could potentially take less drastic steps to raise revenue, such as ending the tax-free growth of the Roth account investments, or counting Roth withdrawals as part of income in tabulations to establish who qualifies for certain social benefits. Or, the government could choose to phase out the ability of heirs to enjoy tax-free growth on the Roth account. "It's hard to say what they're going to do — it's really speculative," says Leonard.
The people jumping into the program now are primarily the wealthier segment of the population who have plenty of cash sitting on the sidelines to pay the tax and who want to use the Roth as an estate-planning tool, to pass the tax-free account to their heirs, advisers say.
It's most beneficial for people who have no intention of using their Roth IRA for income in retirement, says Kilday. "They're saving it for their heirs" so that money can be passed on tax-free, he says.
Leonard sees members of Congress among the program's biggest beneficiaries. "They're all in this income bracket [with adjusted gross income of more than $100,000], and most of them don't need that type of money for their retirement, so this really benefits them," he says.