How to Transfer a Roth IRA

Transferring funds from a traditional IRA to a Roth IRA can cost you in early withdrawal fees and of course any additional contributions you make to the Roth will not be tax deductible. However, there are upsides to converting to a Roth IRA for certain people. This article will guide you in deciding whether or not to transfer to a Roth IRA.

Difficulty: Moderate

Instructions

1. Consider your tax bracket. If you are relatively young, make a lot of money and have invested in some stocks that have nose-dived but still have the chance for a strong recovery, rolling your traditional IRA into a Roth is a great idea. Also estimate what you will be earning and what your tax bracket will be when you retire to determine when it is the best time for you to pay taxes on your investment earnings. You can't avoid paying taxes on your earnings but with planning you can minimize the amount you pay.

2. Look at your stock portfolio. Suppose you have stock that was originally $20 per share and has sunk to $2 per share. You feel that the stock is worth keeping because you are sure it will rally. Transfer these depreciated stocks to your new Roth IRA. You will have to pay the taxes on the current value of the stocks, but then when they gain value in the Roth you won’t owe anything more, as income generated inside the Roth is tax free.

3. Find a custodian who will handle your Roth IRA investments. It may be a brokerage firm, mutual fund or a self-directed Roth IRA where you can direct your investments into nontraditional investments such as real estate. You will need to complete the paperwork to transfer into a Roth IRA.

4. Know the deadlines for completing a conversion to a Roth IRA: December 31 for the current tax and calender year. Make sure you allow enough time to complete the necessary paperwork before the deadline.

5. Seek advice from a financial adviser and accountant about your individual situation. Make sure that it is in your best interest to transfer to a Roth IRA. Meet with your advisers regularly as your circumstances may change over time and you may have to adjust to find the proper retirement plan for your new situation.

Tips & Warnings

• Consider several IRAs if you are unsure of some of your investments. Just be aware that there are limits as to how much you can donate to your combined IRAs in one fiscal year.
• Don’t try to transfer more assets than you are able to pay taxes on. You can only use the withdrawal itself to pay the taxes if you are willing to pay an extra 10 percent in penalties.

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on 1/13/2009 Can I transfer my Roth IRA to my Roth 401k then take out a loan?