Time to Consider a Roth Conversion?

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

IRS Publication 590-A Contributions to Individual Retirement Arrangements (IRAs) is a useful reference which provides information on opening and the different ways of funding traditional and Roth IRAs.

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 Roth conversion has tax implications because funds are moved from one tax environment to another.

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