How to Move Funds from a Traditional IRA to a Roth IRA

A Roth IRA program can either make you spend or help you save thousands of dollars in extra taxes. Use these steps to find the Roth IRA that's best to either transfer or rollover your Traditional IRA funds into.

Difficulty: Easy

Instructions

Steps for Moving Funds from a Traditional IRA to a Roth IRA Via Transfer

1. Research Roth IRA programs online. Talk to bank representatives and investment specialists. Ask them to explain maintenance fees. Determine if you qualify for a Roth IRA. To qualify, you need a Modified Adjusted Gross Income of less than $100,000. You cannot file your taxes as "married filing separately."

2. Determine which financial institution offers the best Roth IRA program. Search for information about each institution's customer service record. Seek investment expertise.

3. Learn about the tax consequences of your IRA transfer. Ask someone at the institution you've chosen what taxes you need to pay on the funds you will be transferring. Transferring funds between institutions is not generally reported to the IRS. Still, tax consequences may still accrue.

4. Fill out the paper work at your new institution.

5. Wait for your funds to be transferred. You should receive a notification in the mail when the transaction has been completed.

Steps for Moving Funds from a Traditional IRA to a Roth IRA Via Rollover

6. Research Roth IRA programs online. Talk to bank representatives and investment specialists. Ask them to explain maintenance fees. Determine if you qualify for a Roth IRA. To qualify, you need a Modified Adjusted Gross Income less than $100,000. You cannot file your taxes as "married filing separately."

7. Determine which financial institution offers the best Roth IRA program. Search for information about each institution's customer service record. Seek investment expertise.

8. Learn about the tax consequences of this transaction. Unlike IRA transfers, rollovers are always reported to the IRS. Because of this, you have to pay taxes on your rollover money for the tax year you start moving your money. Ask your CPA or your financial institution for more information about tax liability.

9. Fill out the paperwork for the rollover. You will need to fill out a rollover application and submit it to the institution that will be setting up your Roth IRA account., You may also need to fill out paperwork for the institution that holds your Traditional IRA.

10. The financial institution holding your traditional IRA will issue you a check for the amount you want to rollover. You have 60 days to deposit your disbursements into your Roth IRA account. Some people use the rollover to get a temporary loan from their IRA. If you cannot pay back all of the money within 60 days, do not try this. You could lose your IRA status! Plus, you will be required to pay early withdrawal fees.

11. Deposit your funds into your Roth IRA within 60 days of receiving your disbursement check.

Tips & Warnings

• Before opening an account, make sure that a Roth IRA is the right investment option for you.
• Shop around for the best Roth IRA account features.
• Research the methods of moving your money, both via transfer and rollover. Make sure you use the one that's right for your situation.
• You can use the rollover method of transferring funds between IRA accounts to gain temporary use of the money without penalties.
• You are not technically allowed to "borrow money" from an IRA.
• If you do not deposit your rollover check into your Roth IRA within 60 days, you may face several penalties. You may be forced to forfeit your funds' IRA status. You will have to pay penalties for early withdrawal and additional tax penalties.

[mbowes]

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