How to Move Money From an IRA Into a Roth
Previously, the Internal Revenue Service (IRS) disallowed conversions from traditional Individual Retirement Accounts (IRA) into a Roth IRAs for taxpayers with an adjusted gross income (AGI) over $100,000. For 2010, this provision has been waived, meaning that most traditional IRAs can be converted into Roth IRAs by simply filling out some transfer paperwork.
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Instructions
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Open a Roth IRA account. Most banks and financial services firms will be able to open your Roth for you. You will have to provide them with personal information such as your name, address, social security number, date of birth, and similar information for your designated beneficiaries. If you are converting a traditional IRA account into a Roth you do not need to fill out new paperwork, but simply write out a letter of authorization outlining your specific intentions to re-designate the traditional IRA as a Roth IRA.
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Inform your new Roth custodian that you wish to convert your traditional IRA to a Roth. If you are performing the conversion at the same firm, you will just need your letter of authorization, but if you are transferring your IRA out to a new firm via a trustee-to-trustee transfer, you will have to complete paperwork at your new firm. In order to complete the transfer, you will have to provide your Roth custodian with all of the essential information about your traditional IRA account. This can usually be accomplished simply by providing a copy of your most recent account statement. If you wish, you can also transfer your funds via a rollover, in which you receive the funds from your traditional IRA and physically redeposit the funds in your new Roth IRA.
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Monitor the transfer. Make sure that all of your assets transfer over to your Roth, and that no residual assets, such as recently paid dividends, remain in your old account. Some assets cannot be transferred between firms, so make sure those assets are liquidated and that the cash is sent over to your new account.
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File your taxes. An important part of converting a traditional IRA to a Roth IRA is paying tax on the transfer. As a regular IRA is a pretax account, and a Roth IRA is funded with after-tax money, the entire amount of your transfer to a Roth is considered taxable income in the year that the transfer occurs. At the end of the year, you will receive a 1099-R from your original firm showing the amount of the Roth conversion. Report this figure on line 15b of your Form 1040. For 2010, any tax liability incurred upon conversion to a Roth IRA can be paid out either all in 2010 or equally over years 2011 and 2012.
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