How to Transfer Money From a Regular IRA to a Roth IRA
Traditional IRAs and Roth IRAs are similar types of individual retirement accounts but have different rules and regulations. You can withdraw money at any time from either account but may incur stiff penalties if you do so too early without specific exceptions. However, you can convert money from a traditional IRA to a Roth IRA without penalty, although you will be required to pay taxes on the conversion amount. Income taxes are applied to withdrawals from traditional IRAs and contributions to Roth IRAs.
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Instructions
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Confirm your eligibility. Internal Revenue Service rules and regulations change from year to year.
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Calculate the taxes you will owe if you complete the conversion. Take into account your current tax bracket, because a conversion could affect your rate.
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Consider how you will pay the taxes for the Roth IRA contributions. Using assets from your traditional IRA will leave you with considerably less money to convert to your Roth. Using outside assets to cover your tax bill will allow you to keep more of your retirement account investments.
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Consider other relevant factors, such as your current and projected tax situations and estate planning.
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Use online conversion calculators (see Resources and References). These calculators can help advise you and determine whether you are eligible to convert to a Roth IRA, based on your age, your filing status, your current and expected household income, the current inflation rate, the value of all household IRAs, any nondeductible contributions, whether you've rolled over any IRAs to a Roth and how you've paid the taxes, details about your other retirement accounts and your timeline for retirement.
Although these calculators are helpful, they should not be the only tool you use to make your decision.
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Tips & Warnings
If you are married but did not live with your spouse at all during the year and file a separate tax return, you will be considered single for the purposes of determining your conversion eligibility.
If you are not eligible for a conversion, consider a recharacterization. A recharacterization classifies a contribution made to one type of IRA as a contribution to a different type of IRA.
Tax regulations change regularly. Review all relevant regulations and publications before proceeding with any tax planning or preparation.
