Because Roth IRAs allow money to grow tax-free many people are opening these retirement accounts or rolling money from an existing account into a Roth. Is it right for you? That’s a discussion to have with your financial advisor and CPA. If you’ve been considering this option read below for some simple tips on how this process typically works.
How to Convert Assets to a Roth IRA
Let’s look at two different scenarios:
- If your money is currently with a brokerage firm a direct trustee-to-trustee transfer will typically occur from one financial institution to another. Or if you’d like to stay with your current financial institution rather than opening a new account you can simply redesignate your Traditional IRA to a Roth
- If you are converting assets such as rolling your 401(k) or other retirement savings account into a Roth IRA the funds should be directly rolled into the new Roth account. If a check is issued to you a 20% tax will be withheld from that check and you will have 60 days to deposit the check (along with the 20% tax deduction) into the new Roth IRA. Missing the 60-day deadline means you’ll be subject to pay a 10% early withdraw fee if you’re younger than 59½.
- Any amounts rolled from your traditional IRA to your Roth IRA using either scenario above are completely taxable in the year of conversion.
The process for completing a Roth IRA is not complicated and can be a beneficial lucrative retirement choice. There are several ways you can learn more about this option if you’re considering making the switch. Lindemeyer CPA can schedule a consultation to discuss options regarding the conversion. It’s a way we get to know you and your tax needs. You can inquire about a consultation on our website.
Let us know how we can be of assistance or if you need help getting the process started.