How to Change an IRA to a Roth IRA
Roth IRAs are an attractive way to save for retirement. You invest for retirement with taxable contributions now and once you retire, the withdrawals are tax free in most instances. Roth IRAs are such an attractive investment that many people convert their traditional IRAs into Roth IRAs.
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Instructions
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Determine if converting your IRA to a Roth is right for you. You shouldn't need the money for at five years and you should expect that you will be in a higher tax bracket when you need the money. You want to bequeath the Roth IRA to someone when you die (a traditional IRA doesn't allow this). You shouldn't need the money before age 59.5.
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Determine how converting your IRA affects your taxes. The traditional IRA amount you convert will show as income on your taxes. Will this push you into a higher tax bracket? It will make deductions based on your adjusted gross income smaller. Can you afford the changes? If not, convert your IRA in affordable chunks to minimize the tax impact.
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Decide who to administer your Roth IRA and what investments you want for the new Roth IRA. You don't need to invest in the same thing when you convert your IRA. However, if you're happy with your returns, you certainly can maintain the funds with the same company but just change the classification of your account.
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Fill out paperwork with your Roth IRA administrator to have your traditional IRA converted. Contact the company and they will send you the forms you need to fill out to make the conversion.
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Pay the taxes. You will need to pay income taxes on the amount of the IRA that you rollover into the Roth IRA. The advantage of this will be when you begin withdrawing the money, it will be tax free. You should be able to pay the taxes owed without tapping into the IRA funds.
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