Roth IRA Conversions

Simply.

A Roth IRAconversion is the act of transferring assets from a Traditional IRAinto a Roth IRA.

Extended.

The conversion process can take place using one of 3 methods: Rollover,Trustee-to-Trustee transfer, and a Same Trustee transfer. Note: If a Traditional IRA is converted to a Roth IRA, the transaction will be treated as a rollover - regardless of the actual method used.

Rollover - You receive a distribution from a Traditional IRA and deposit that sum into your Roth IRA account within 60 days. If you choose to rollover via distribution, your account will be subject to a Roth IRA tax withholding.

Trustee-to-Trustee transfer - You can have the trustee of your Traditional IRA transfer your assets to the new trustee, the manager of your Roth IRA.

Same Trustee transfer - If you are not switching financial institutions, but only switching account types, you can use a Same Trustee transfer. In a same trustee transfer, the institution will move your assets into the Roth IRA or, in the event of a full conversion, simply "redesignate" the Traditional IRA to a Roth IRA.

In conversion transactions, there are taxes to pay. The amount of taxes will ultimately depend on the contribution mix of the Traditional IRA. You can convert after-tax, nondeductible contributions made to a Traditional IRA into a Roth IRA tax-free. However, typically, most contributions to a Traditional IRA are pre-tax contributions with tax-deferred status. The examples presented are light on the tax portion of the equation for brevity. The examples are merely to illustrate the mechanics of each transaction. For more on conversion taxes, read "Do I have to pay taxes with a Roth IRA conversion?"

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What is a Roth IRA conversion? (with examples)

Do I have to pay taxes with a Roth IRA conversion or rollover?

Your tax bill will depend on the nature of the assets being converted. If the conversion assets were tax-deferred, there will be an ordinary income tax bill.

Will a Traditional IRA to Roth IRA conversion increase my AGI?

If you are thinking of converting your Traditional IRA, be wary of increasing AGI.

Am I eligible for a conversion? Rollover?

There are no requirements that need to be met for first time rollovers. However, if rolled over and recharacterized before, you may be effected by time limitations.

When is the best time to convert?

Conversions are taxed at ordinary income levels. Keep this mind when selecting a time to convert.

What is a rollover?

What is a recharacterization?

Recharacterization is a great way of correcting, "undo"-ing, or merely changing the purpose of past transactions. It can also save you money!

How long after a rollover before I can withdraw funds?

The same age and duration rules for standard contributions apply here, but the calculation of the conversion's 5-year start date is a little different.