Can I Rollover Mutual Funds to a Roth IRA?

A rollover refers to moving money from one qualified retirement plan to another, such as an individual retirement account (IRA). You cannot roll over money from a nonqualified retirement plan into a Roth IRA.

Function

If you have money in a qualified retirement account invested in a mutual fund, you can roll that money into a Roth IRA, because you are moving the money from one qualified retirement plan to another.

Considerations

If you move money from a tax-deferred retirement account, such as a traditional IRA or 401(k), you must include the amount of tax-deferred contributions and earnings as part of your taxable income on your tax return for the year.

Warning

If you attempt to move money from mutual funds not in a qualified retirement plan into your Roth IRA, the money will be counted as contributions. If the amount exceeds the annual contribution limit, which equals $5,000 ($6,000 if you are 50 or older) as of 2010, you will have to pay a 6 percent excess contributions penalty until you correct the problem.

References

• Internal Revenue Service: Publication 590
• Business Management Daily: No Roth IRA Transfer of Mutual Funds