Roth IRA Conversion

 

Investors may convert a traditional IRA to a Roth IRA. Taxes must be paid on all pre-tax dollars being converted from the traditional IRA. Converting to a Roth IRA would allow investors to take advantage of the tax-free benefits of the Roth IRA.

Eligibility

�   All individuals, married or single, with an adjusted gross income of $100,000 or less may convert to a Roth IRA. Married individuals filing separately cannot make a conversion.

Note: The $100,000 restriction is eliminated in 2010.

Taxation

�   Ordinary income taxes must be paid on all pre-tax dollars converted from the traditional IRA to the Roth IRA in the year of the conversion.

The 10% premature penalty tax that normally applies to distributions taken before age 59 1/2 does not apply to con�verted amounts. .

Distributions

�   Distributions from the Roth IRA are not mandatory at age 70 1/2. Also, distributions can occur tax- and penalty-free if the distributions arc considered "qualified."

�   A distribution is considered qualified when assets have been held in the Roth IRA for a minimum of five taxable years (beginning with the first taxable year for which a Roth contribution was made) and one of the following events occur:

1) attainment of age 59 1/2;

2) disability;

3) the purchase of a first home; or

4) death.

�   A non-qualified distribution is subject to tax and penalty to the extent that it exceeds total contributions. Exceptions may apply.

Rollovers

�   A rollover from a traditional IRA to a Roth IRA must occur within 60-days from the date of withdrawal or it may be considered a distribution. Normally, only one rollover per account may occur in a twelve-month period, however, this rule is waived in instances of conversion.

Before making decisions about Individual Retirement Accounts, investors should consult their lax advisor. Stifel does not offer tax advice.