How to Switch an IRA to a Roth IRA
If your adjusted gross income is less than $100,000 for the tax year 2009, you may be eligible to convert your IRA account into a Roth IRA account. The amount of the conversion must be reported as current-year taxable income, but there are no future taxes on any subsequent earnings or withdrawals. Depending on a number of factors, such as your future tax rate, your age and the amount of your account, such a conversion may or may not be appropriate for you.
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Instructions
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Instructions
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Consult your tax adviser. The tax consequences of converting your IRA account to a Roth IRA can be complicated, and it is important that you understand all the ramifications of your actions. For starters, depending on your income level, you may not even be eligible for a conversion.
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Inform your financial adviser that you want to convert your account. In addition to providing you with the necessary forms, such as the new account form for your Roth IRA, the financial adviser may have siggestions regarding the timing of your transfer. For example, if he anticipates that the value of your account may be declining in the near future, he may advise you to wait until this occurs; as you will be paying taxes on the amount of the transfer.
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Monitor the transfer. Insure that the transfer occurred as you requested. Keep records of the transaction, such as your brokerage statement, as you will need them when you file your taxes.
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File your taxes. Obtain a copy of IRA Publication 590 and make sure to follow the instructions regarding the transfer of your account. Failure to list the transfer when you file your taxes could result in severe financial penalties.
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Tips & Warnings
If you change your mind about your conversion, you can recharacterize the conversion and return the money to your traditional IRA account. For the specific rules and restrictions of recharacterizations, consult IRS Publication 590 or your tax adviser.
