How to Convert to a Roth IRA

Roth IRAs are popular options for retirement investment accounts. In fact, they're so popular that some people want to convert their existing retirement accounts to a Roth IRA. One of the more common moves is to convert a Traditional IRA to a Roth IRA. It's something that can be done and it's a smart move financially. But it only pays off if you do it right.

Instructions

Difficulty: Moderate

1. Add up your gross annual income. If it exceeds $100,000 for married couples filing jointly or for single filers, you do not qualify for a Roth IRA conversion. However, in the next few years this income limit will be eliminated. And that will open the door for more people to take advantage of a Roth IRA conversion.
2. Qualify your conversion. Your existing retirement account should meet the 60-day rollover time period and it should not violate the one year rollover rules. This can get complex, so you might want to consult with a financial advisor to make sure your conversion is qualified.
3. Study the tax implications of a Roth IRA conversion. All or some of your conversion could be subject to taxation. Just how much depends on a number of things like prior deductible contributions and funds included from a prior rollover.
4. Enjoy being penalty free. A Roth IRA conversion is qualified and that means it escapes the 10% penalty that you usually see when you make an early withdrawal from an IRA. However, your funds in the Roth IRA conversion could still be subject to penalty if you make an early withdrawal.