Beginning in 2010, all taxpayers are eligible to roll over or convert amounts from a traditional IRA into a Roth IRA regardless of their level of income. However, that doesn’t necessarily mean that you should.


Typically when converting pre-tax money, such as that which is held in a traditional IRA, to a Roth IRA, which can only hold after-tax money, it will result in taxable income to you, the taxpayer. Even though you have to pay income tax on the amount that you convert to a Roth IRA, there are some situations where it may make sense to do so, such as when:

·        You think that you will be in a higher tax bracket when you start distributions from your IRA

·        You have many years left to retire

·        You desire to leave a tax-free asset to children or grandchildren, and

·        You have the ability to pay the tax from other funds besides the IRA itself


A conversion is treated as a rollover, regardless of the conversion method used. A traditional IRA can be converted to a Roth IRA in one of the following ways:

·        Rollover: A distribution from a traditional IRA can be contributed to a Roth IRA within 60 days after distribution. If properly rolled over, the 10% additional tax on early distributions will not apply.

·        Trustee-to-trustee transfer: Your financial institution that is the trustee for your traditional IRA will provide directions on how to transfer your money to a Roth IRA with another institution.

·        Same trustee transfer: Similar to a trustee-to-trustee transfer, your financial institution will provide directions on how to transfer your money to a Roth IRA. However, the transfer occurs within the same institution.


You can also roll over into a Roth IRA all or part of your money from a qualified retirement plan. Like a traditional IRA conversion, these amounts are also subject to the same rules and may also be subject to additional rollover requirements. You must include in your gross income the amount that you are converting as if you had not rolled them over into a Roth IRA.


For more information and resources on Roth IRA conversions, please see Publication 590, Individual Retirement Arrangements or contact your local income tax preparation office for assistance.


Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.