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Converting to a roth IRA

IRA is an alternative to a Traditional IRA with distinct tax benefits. Contributions, for example, are not tax-deductible, but can be made past age 70-1/2. Earnings from a Roth IRA accumulate tax-free, but unlike a Traditional IRA, withdrawals are free of tax and penalties, provided certain conditions are met. Those conditions include a five-year holding period and attainment of age 59-1/2, or if made for certain specific purposes. 

Benefits of Converting to a Roth IRA 


  • Contribution withdrawals are tax-free
  • Conversion withdrawals are tax-free
  • If you are over 59-1/2 and your Roth IRA has been opened for at least 5 years, any type of withdrawal is tax-free
  • Not subject to Required Minimum Distributions (RMDs)
  • Roth IRA assets generally pass tax-free to beneficiaries
  • Among other considerations, a Roth IRA may be appropriate for those who expect tax rates during retirement to remain the same or to be higher than their current tax rate.  
 

Roth Conversion Opportunity

As of Januay 1, 2010 the existing $100,000 income limit for converting a Traditional IRA to a Roth IRA no longer applies. Removing the Roth IRA conversion limit however doesn't mean anyone can fund a Roth IRA; income limits will still apply to Roth IRA contributions. Converting your Traditional IRA to a Roth IRA will need careful consideration, consulting and planning with your tax advisor.


To convert your existing Traditional IRA to a Roth IRA, complete the Roth IRA Certification Form. For alternative investments, you will also need to provide the most recent valuation of the asset. For additional information or to speak with a client service representative, please call 800.258.7878.


Important Things to Consider before Converting to a Roth IRA

You can make a partial conversion of your Traditional IRA to a Roth IRA. You may also want to consider the value of your current portfolio during these tough market conditions. Right now, they may be undervalued and you could benefit by converting your Traditional IRA now rather than later.

Recharacterization. If you decide to change your mind about your Roth IRA conversion you have until the tax return due date plus extension to undo the conversion. To start the process, you need to complete an IRA Recharacterization Request.
 
Estate Taxes. If you convert to a Roth IRA, your Roth IRA generally will be passed on tax-free to your beneficiaries. There is much to consider before deciding to convert your Traditional IRA to a Roth IRA. Remember, these rules apply to Alternative Retirement Investments as well. Alternative Investments consist of Futures, Hedge Funds, Promissory Notes, Real Estate, Mortgages/Trust Deeds, Precious Metals, Private Stock, Private Equity, and LPs/LLCs.