What is a Roth conversion? What is a Roth conversion?

What is a Roth conversion?

Diego Chavez Diego Chavez

A Roth Converion is the process of moving a Traditional IRA, 401k, 403b or other Pre-tax accounts into a Post-tax Roth IRA

Converting a pre-tax IRA or employer plan to a Roth IRA may or may not be the appropriate strategy for you. When one converts a Traditional retirement account to a Roth IRA, a one-time taxable event is created to make the conversion happen.  

 

Roth IRA conversion process

  1. Funds need to be in a pre-tax IRA, most often a Traditional IRA, in order to be eligible for conversion. 
  2. If rolling over an employer plan like a 401k, 403b, TSP, or 457, the account gets rolled into a Traditional IRA first.  See if your employer plan is eligible for rollover
  3. When completing an iTrustCapital application, you will indicate that you currently have a Traditional retirement account, but would like to open a Roth. This will ensure you receive the proper next steps. 
  4. It is important to understand that this creates a taxable event and you are responsible to report the conversion to the IRS when filing my income taxes for the following year. The amount converted will be added to your income for the calendar year in which the conversion is done. 
  5. Once converted, your account will continue to experience tax-deferred growth as it was in your Traditional account, but because it's a Roth IRA, qualified distributions during retirement will be tax-free.

new contribution is another way to get your post-tax funds into a Roth IRA
You can almost always make a contribution to a Roth IRA with new funds directly if you are eligible and under the income limits.