How to Convert a Keough Retirement Account to a Roth IRA

Keogh plans are retirement savings programs for self-employed individuals or those working for unincorporated businesses. These are tax-deferred account that reduce a participant's annual income by the amount contributed into the plan. When distributions are taken, the distribution amount is added to income. The Internal Revenue Service (IRS) does not allow a direct conversion from a Keogh into a Roth IRA. In order to obtain the tax-free growth offered in a Roth, participants must rollover Keogh assets first and then convert.

Things You'll Need

• Keogh statement

Instructions

1. Open a Rollover IRA at a custodian who meets your investment needs and objectives. Banks, brokerage firms and insurance companies all have Roth custodial services offering different investments for the Roth. Investments include time certificates, stocks, bonds, mutual funds and deferred annuities.

2. Check the title of the account to make sure your name is spelled correctly. Get a confirmation with the new account number for the new IRA. Mistakes in your name, address or other contact information may delay the rollover or result in rejection (meaning you need to start over).

3. Call the Keogh plan administrator at the customer service number listed on the statement. Request a rollover package. The administrator needs to confirm that employment is terminated and that you are authorized to rollover Keogh assets before sending out or approving any paperwork.

4. Fill out the rollover paperwork section by section being careful to provide accurate and current information including your current address, Social Security number and date of birth. Fill out the direct rollover section with the account information from the traditional IRA.

5. Submit the rollover paperwork to the Keogh administrator. Allow three to six weeks for the rollover to happen.

6. Call the rollover IRA custodian to confirm the money has been transferred to the new IRA. Ask what paperwork is required to convert the rollover IRA into a Roth IRA. Some custodians require opening a new Roth account and then converting while others only need conversion forms signed.

7. File the appropriate paperwork with your IRA custodian to complete the conversion.

Tips & Warnings

• The 2010 IRS regulations allow investors with conversions made in the year 2010 to pay the taxes when filing income taxes in 2011 and 2012, spreading the conversion tax liability over two years. Conversions in subsequent years are subject to future legislative changes.

• Speak with a tax adviser regarding the benefits and disadvantages of converting to a Roth IRA.

References

• Financial Web: What is a Keogh
• CPA Site Solutions: Roth IRAs
• IRS: Roth IRAs