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How to Convert Your Retirement Account to a Roth IRA

By iTrustCapitalFebruary 26, 20201 minute read

How to Convert Your Retirement Account to a Roth IRA

Converting a Traditional IRA, 401k, 403b or other Pre-tax accounts into a Post-tax Roth IRA

If given a choice, most people want the tax-benefits of a Roth IRA over any other type of retirement account. However, converting a pre-tax IRA or employer plan may not always be the right move for everyone. Although the income limits were removed in 2010, allowing any pre-tax IRA to be converted to a post-tax 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.

  2. If rolling over an employer plan like a 401k, 403b, TSP, or 457, the account gets rolled into a Traditional IRA first. 

  3. At any time, your pre-tax IRA can be converted to a Roth IRA by signing a simple form through your custodian.

  4. It is important to understand that this is a taxable event. The amount converted will be added to your income for the calendar year in which the conversion is done. 

  5. Once converted, your gains inside a Roth IRA will be untaxed, upon withdrawal, as opposed to a tax-deferred.

A 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 under the income limits, or through a Backdoor Roth IRA if you are over the income limits.