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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).
Unlike the traditional IRA, the Roth IRA offers account holders the ability to take tax-free withdrawals in retirement, provided the qualifications are met. Since Roth IRAs weren’t available until 1998 – more than a decade after the Traditional IRA was created – the Roth conversion is a strategy many individuals haven’t heard much about.
[Related: Traditional IRA vs. Roth IRA: FAQ]
How can an IRA to Roth conversion be done? From the IRS, there are three ways to convert funds from a traditional IRA to a 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.
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.
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
Can I transfer funds from a previously established retirement plan into an Equity Trust self-directed IRA?
Do transfer funds from a previously established IRA have to be from like accounts?
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