How to Convert a Traditional IRA to a Roth IRA in 2010
Beginning in 2010, the Internal Revenue Service no longer limits who can convert money from a traditional IRA to a Roth IRA based on income. Instead, anyone with a traditional IRA is eligible to convert to a Roth IRA. Because you are converting from a traditional IRA to a Roth IRA, you must pay taxes on the amount of the conversion. In order to make sure you do not incur additional penalties from the IRS, you must make sure you properly report the conversion on your taxes.
Other People Are Reading
Instructions
-
-
1
Contact your financial institution that has your traditional IRA to obtain the forms required to file for a direct conversion from a traditional IRA to a Roth IRA. The forms will differ between institutions but you will always need to provide your account information and your identifying information, including your Social Security number.
-
2
Estimate the amount of taxes you will owe on your Roth IRA conversion. The amount of the conversion will be added to your taxable income so it will be taxed at your marginal tax rate. Your marginal tax rate is the highest tax bracket that part of your income falls in. For example, if you are converting $20,000 and you fall in the 28 percent tax bracket, you would estimate that you would owe $5,600.
-
-
3
Make an estimated tax payment based on how much you expect to owe on your conversion. Though you could take money out of your conversion to pay the estimated taxes, you are better off paying from another source, such as your checking account, to avoid early withdrawal penalties. You can download a copy of form 1040-ES from the IRS website (see resources). Even if you are having income taxes withheld from your job, you should make an additional estimated payment because your withholding at work does not factor in Roth IRA conversions.
-
4
Request a form 1099-R from your financial institution that had your traditional IRA if you do not receive one before February of the following year. The form 1099-R is needed to file your taxes. The total amount of the conversion will be listed in box 1 and the taxable amount of the conversion will be listed in box 2a.
-
5
Use form 1040 or form 1040A to file your taxes. If you use form 1040A, report the total amount of your conversion on line 11a and the taxable portion on line 11b. if you use form 1040, report the total amount of your conversion on line 15a and the taxable portion on line 15b.
-
1
References
Resources
- Photo Credit tax forms image by Chad McDermott from Fotolia.com
