How to Convert to a Roth
A Roth conversion refers to converting money from a traditional retirement account, such as a traditional IRA, 401(k) or 403(b) plan to a Roth IRA. You cannot convert a traditional IRA, 401(k) or 403(b) plan to a Roth 401(k) or Roth 403(b) plan. People choose to convert to a Roth IRA because of the tax-free withdrawals that it offers. However, you will have to pay taxes on the money that you are converting because the contributions to traditional accounts are tax deductible. Beginning in 2010, the Internal Revenue Service permits all individuals to convert money to a Roth IRA, regardless of income.
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Instructions
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Contact your the custodial financial institution to initiate a conversion from your prior retirement account to a Roth IRA. You will need to provide your identifying information, account information and information about the Roth IRA you are transferring the money to.
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Tell your financial institution whether you want it to withhold money from your conversion for income taxes or whether you will make those payments on your own. Unless you have no other way of paying the taxes, you should not have the money from the conversion withheld if you are under age 59 1/2 because the money that is withheld will be subject to an additional 10 percent penalty. A wiser decision would be to have the estimated taxes withheld from another account, such as a checking account, at the financial institution.
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Report the amount of the conversion as taxable income on your federal income tax return. The amount of the conversion will be subject to the same tax rates as any other income you earn during the year. Therefore, you may want to consider waiting until you have a low income year to convert or converting smaller parts of your traditional accounts to a Roth IRA each year rather than making one large conversion.
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References
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