How to Convert to a Roth IRA

Can I Convert My Traditional IRA to a Roth IRA?

You can change your traditional IRA to a Roth IRA, and vice versa, depending on your tax needs. A simple adjustment in your IRA may have a large impact on your taxes when it's time to withdraw money.

Equity Trust provides more details about conversion, recharacterization, and reconversion below. As always, you can call 1-888-ETC-IRAS (382-4727) for further information.

Am I Eligible to Convert?

You may convert some or all of your existing traditional IRA assets to a Roth IRA. A conversion requires you to include in your current income the taxable assets you're converting.

Why Convert an IRA?

If you anticipate a change in your tax rate it may make sense to consider paying the tax liability now in exchange for the opportunity for tax-free growth and future distributions. This opportunity may increase the value of your retirement savings later.

Converting to a Roth IRA requires you to include the taxable assets you're converting as part of your current income. You will need to pay taxes on the earnings of those contributions when you take a distribution or convert the assets.

Taxes may also be due on any deductible or pre-tax contributions and earnings, which you must include in your current income.

What is Recharacterization?

Recharacterization allows you to treat a contribution as if it were made to a different type of IRA. You can also recharacterize assets that you once converted to a Roth IRA back to a traditional IRA. You can recharacterize for any reason, not just due to an error or ineligibility.

So, whether you discover that your income exceeds the adjusted gross income (AGI) limits for an annual Roth IRA contribution or you contribute to a traditional IRA and later decide that the Roth IRA is the more attractive choice for you. You're allowed to recharacterize your annual IRA contribution in either direction—from a traditional IRA to a Roth IRA, or from a Roth IRA to a traditional IRA.

What is Reconversion?

A reconversion occurs when you recharacterize Roth IRA converted amounts back to a traditional IRA, and then convert these assets back to a Roth IRA again.

You should be aware of the IRS regulations which limit reconversions.

You should consult a tax advisor to more fully understand the regulations surrounding reconversions.