How to Convert a Rollover IRA to a Roth IRA
Rollover IRAs are typically created when an employee converts an employer-sponsored 401k to an IRA upon leaving a job. Rollover IRAs are traditional IRAs. If you would rather have your money in a Roth IRA, it is actually pretty easy to do a rollover conversion from a traditional IRA to a Roth IRA as long as you meet all of the requirements mandated by the IRS. Converting a rollover IRA to a Roth IRA is something you can do on your own and does not require an investment background.
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Instructions
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Check your modified adjusted gross income for the year. The IRS limits who can roll over IRAs by only allowing it if your modified adjusted gross income is below $100,000. You can look at your most recent tax return to see if this would apply to you.
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Verify your filing status. The IRS stipulates that in order to be eligible for an IRA rollover, you cannot be married and filing a separate return.
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Request a distribution from the company with which you have your IRA. Let them know that you want to roll over your IRA to a Roth IRA. Typically, you can do this online by logging into your account and requesting the distribution paperwork.
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Complete your distribution paperwork and submit it to the company with which you have your IRA. You can request that the distribution check be made payable to yourself. You will have 60 days to deposit the check into a Roth IRA account. If you do not do that, you will be assessed with taxes on taking a distribution. If you already have a Roth IRA account set up, you can arrange to have the distribution check sent directly to the account.
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Set up a new Roth IRA account if you do not already have one. You can use an online brokerage, such as Vanguard or E*TRADE, to open a new Roth IRA for the rollover. If you do this before requesting your distribution account, you can get a deposit address from the brokerage so that the check can be sent to them directly. You can also mail in the check yourself. Periodically log into the new account once you have sent them the check to see when the money is posted to the account. Once it is posted, you can buy the shares in which you want to invest for your Roth IRA.
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