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Investor Insights Blog|Time to Consider a Roth Conversion?

Roth IRA

Time to Consider a Roth Conversion?

man at computer

Some people find it beneficial to convert funds from a traditional IRA to a Roth IRA, known as a Roth conversion.

A Roth IRA conversion is a taxable movement of assets from a tax deferred account (taxes have not been paid on contributions) to a tax-free account (taxes have been paid on contributions).

The Roth IRA offers account holders the ability to take tax-free withdrawals in retirement, provided the qualifications are met.

[Related: A Roth IRA can be used for than just retirement]

So, how exactly does a Roth conversion work?

From the IRS, there are three ways to convert funds from a traditional IRA to a Roth IRA:

  1. Rollover – You receive a distribution from a traditional IRA and contribute it to a Roth IRA within 60 days after the distribution (the distribution check is payable to you);
  2. Trustee-to-trustee transfer – You tell the financial institution holding your traditional IRA assets to transfer an amount directly to the trustee of your Roth IRA at a different financial institution (the distributing trustee may achieve this by issuing you a check payable to the new trustee);
  3. Same trustee transfer – If your traditional and Roth IRAs are maintained at the same financial institution, you can tell the trustee to transfer an amount from your traditional IRA to your Roth IRA.

A useful reference is IRS Publication 590-A, which provides information on opening and the different ways of funding traditional and Roth IRAs.

A Roth conversion has tax implications in the year you convert because funds are moved from one tax environment to another.

Consulting with your financial professional is important to understand and determine if converting to a Roth is appropriate for your financial goals. Your financial professional can also help you plan for the impact of this taxable event.

[Roth and Traditional IRA: Can you have both retirement plans?]

How to request a conversion to a Roth account at Equity Trust Company

  1. Establish a Roth account with Equity Trust Company. You can do this by completing the application process using the Account Open Wizard in myEQUITY.
  2. Once you have established a Roth Account, you must complete the Roth Conversion Form, also found in myEQUITY.

If you are requesting assets be converted, you may be required to provide an updated Fair Market Value for each asset by submitting a Fair Market Valuation Form.

If you have questions regarding your specific requirements, please contact your Client Service Team.

Video: Learn more about converting to a Roth IRA

Plan ahead

A Roth conversion has the potential to be a complex undertaking – especially if you are considering converting alternative assets such as real estate.

As with any significant financial or investment decision, it is considered prudent to allow yourself ample time to consult with your financial or tax advisor and prepare the necessary documentation.

If you determine converting to a Roth is appropriate for you, please visit myEQUITY.com to begin your request.

Video: Learn more about converting to a Roth IRA

1

Can I transfer funds from a previously established retirement plan into an Equity Trust self-directed IRA?

It is possible to transfer funds from an IRA you hold at another custodian or a retirement plan from a prior employer, provided the tax environments are the same. A traditional IRA held by another custodian needs to have its funds transferred to a traditional IRA. A Roth IRA needs to have its funds moved to a Roth IRA. Our retirement account specialists can help you determine what type of account you need to open at Equity Trust to move your funds in an approved manner.

2

Do transfer funds from a previously established IRA have to be from like accounts?

Yes. For instance, if you wish to transfer funds from a traditional IRA to an Equity Trust self-directed IRA, the funds must be transferred to a traditional IRA.


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