How to Roll Over Traditional IRAs to Roth IRAs & Change Brokers
Traditional individual retirement accounts are tax-deferred savings vehicles helping investors save money to supplement retirement income. The money put into traditional IRAs is pretax money and added to gross income as it is distributed. Roth IRAs allow tax-free growth in exchange for paying taxes on contributions. Investors may consider changing IRA custodians when looking for better investment opportunities or high-caliber customer service. Transferring assets to a new broker becomes an easy opportunity to convert a traditional IRA to a Roth.
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Instructions
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Add up the total value of the traditional IRA account you want to convert. This amount is added to your gross annual income and taxed according to the tax bracket the additional income puts you in. The IRS lifted income limits, making it possible for anyone of any income to convert a traditional IRA to a Roth IRA.
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Meet with a new broker to review all your existing IRA accounts and statements. Ask what the procedure is to do a direct rollover, also called a transfer, from your existing custodians. Some brokerage firm protocol requires opening a traditional IRA first and then converting to a secondary Roth account. Others don't.
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File all paperwork required to open, move and convert your existing IRA assets with the new broker.
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Provide the broker with a copy of all IRA statements to include with each direct transfer form. While this is not absolutely necessary, it can expedite the process as accounts are confirmed quicker.
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Give the accounts four to six weeks to transfer. The broker should be following up with each IRA custodian sending funds. If a traditional rollover account is established before conversion to a Roth account, the broker will wait until all assets are received before processing the conversion.
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Tips & Warnings
Combining IRA accounts reduces annual fees paid on various accounts.
The IRA custodian converting the money sends IRS Form 1099-R recording the taxable amount in Box 2a. This amount is added to Form 1040, Line 15 on your annual tax return. The 2010 regulations allow you to split the amount converted, placing half for tax year 2010 and half for 2011.
