Custom

Roth IRA Conversion Frequently asked Questions

Roth IRA Conversion Frequently asked Questions

  • What types of retirement accounts can be converted to a Roth IRA?

    • Traditional IRA
    • Rollover IRA
    • SEP IRA
    • SIMPLE IRA (only after the SIMPLE IRA account has been held for at least 2 years)
    • Employer retirement plan (401, 403(b), and 457(b)) assets
  • Do I have to convert 100% of my retirement account assets to a Roth IRA?

    No, you can choose to convert only a portion of your retirement account assets. If you're worried that converting all of your assets in a given year will put you into a higher federal income tax bracket, you should work with your tax advisor to figure out how much you can afford to convert without subjecting those assets to taxes at a higher bracket, as doing so could outweigh the potential benefits.

    If you choose to convert only the nondeductible contributions made to a Traditional IRA, each dollar you convert will be considered a "blended" dollar. Therefore, a percentage of the amount rolled over into the Roth IRA account will be subject to tax unless your IRAs are worth less than the amount of your nondeductible contributions.

  • What are the federal income tax implications of converting?

    You will be subject to income taxes on the taxable amount that you convert to a Roth IRA. The taxes will be calculated based on your marginal income tax bracket and the amount of money you convert from your Traditional IRA or employer plan assets. You'll need to complete IRS Form 8606 to report your "basis" (if any; generally, this relates to nondeductible or after-tax contributions previously made) in your Traditional IRA and to report your taxable conversion income to the IRS.

  • What happens if I change my mind after I've converted my Traditional IRA to a Roth IRA?

    You can elect to reverse a Roth IRA conversion by moving the converted assets back to a Traditional IRA. This is known as a recharacterization. Generally, the deadline is October 15 of the year following the calendar year in which you originally contributed or converted.

    Tax reporting for recharacterizations can be complicated. Consult a tax advisor to ensure proper reporting.

  • Can I make annual contributions to the converted Roth IRA account?

    You must be eligible to make Roth IRA contributions, based on your IRS modified adjusted gross income and tax-filing status. See Which IRA is Right for Me? for more information.

  • Why should I strive to pay the resulting conversion taxes from non-retirement assets?

    When you convert your Traditional IRA to a Roth, you will have to pay tax on any earnings and pretax contributions. If you tap your Traditional IRA to pay the conversion tax, you permanently give up the opportunity for tax-free Roth IRA compounding of that amount.

Return to top