Any time there is a new marketing push by financial companies, you are bombarded by statistics about why you should do what will make more money for them. What I have noticed about people using statistics is that they either a) use them inappropriately, b) don’t disclose analysis methods or c) just make up numbers. Any of these three are hardly a process to engender trust.

Take the Roth IRA conversion push that is going on right now. In 2010, the income caps on Roth IRAs will be lifted and anybody will be able to invest in a Roth IRA. For those of you who don’t know, a Roth IRA is funded with after-tax money and grows tax-deferred. At the age of 59 1/2, owners of Roth IRAs may take money out of the account tax-free. No capital gains taxes, no income taxes.

This differs from Traditional IRAs in that when you begin taking distributions from your IRA, it is taxed at your current income level; the logic being that you will be in a lower tax bracket in retirement and the tax will not impact you as much. Traditional IRAs are funded with pre-tax dollars and thus the government wants to tax the money at some point.

So, back to our topic. Roth IRAs have had income levels on them so that if you made over a certain amount of income, you could not contribute. With the new law taking effect in 2010, this income cap is removed. Because withdrawals are tax-free, it can be argued that converting an existing (likely larger) Traditional IRA to a Roth makes much more sense.

However, you must pay the tax man. Uncle Sam will still want his slice. The act of converting a Traditional IRA to a Roth IRA will cause a taxable event (technically, you are taking money out of the Traditional IRA and then placing the money into a Roth IRA). Normally, you will pay a 10% penalty on top of the tax paid because you took a distribution from your IRA. For example, if you have a Traditional IRA with $100,000 in it and convert it to a Roth, you are adding an additional $100,000 to your income for the year. In addition to the tax you would normally pay on your income, your tax bracket is raised an you may pay additional taxes.

That could really NOT be fun in a recovery year when you need every dime you can possibly get. There is no penalty for early withdrawal on the conversion, so you are reducing your tax burden. Further, if you make the conversion in 2010, you will be able to spread the tax you owe over 2010, 2011, and 2012, helping to reduce the bit of the tax you will pay on your income.

So, what was I talking about earlier? Statistics. Like gold, you will start to see advertisements of Roth IRA conversions. You will see things like, “A Roth conversion makes sense for 95% of IRA owners”, and “You will make back the money you paid in taxes within seven years”. Please ignore these statistics.

Most “advisors” will want to meet with their clients in 2010 to discuss a Roth conversion. Those that are commission-based or even fee-based may take this opportunity to make “changes” to your account, which may or may not be appropriate. For the most part, the advertising is a way to get you in the door. The statistics used can be misleading and may or may not be appropriate for your situation.

Consult with a financial expert other than your broker or advisor. See if the conversion is right for you.