What Are the Rules for Converting a Traditional IRA to a Roth IRA?


Quick Answer

A traditional, pre-tax IRA can be converted to a post-tax Roth IRA account by rollover or trustee transfer, according to the Internal Revenue Service. A conversion calculator such as one provided by Bankrate can help with understanding potential financial implications.

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Full Answer

Because the money that goes in to a Roth IRA has already been taxed, as opposed to a traditional IRA that is taxed upon withdrawal, converting traditional retirement accounts into Roth accounts can seem like a very desirable financial move. In addition, unlike Roth IRA annual contributions, there are no income rules that govern a conversion's eligibility, states a Bankrate advisor in the website's Q&A section. The IRS warns in their publication on retirement accounts, however, that income taxes must be paid upon the amount which is withdrawn for the conversion for the year that the conversion occurs. If one is not properly prepared ahead of time, the resulting tax bill could be disastrous.

Before making any decision regarding a retirement account conversion, it can be beneficial to seek advice from a professional financial adviser or certified public accountant in order to determine if the tax requirements are going to be too onerous to justify such a move, states Bankrate.

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