A:

If your modified adjusted gross income (MAGI) is $100,000 or less and you are not married filing separately, you may initiate a taxable conversion of a Traditional IRA to a Roth IRA. You can do a direct trustee-to-trustee transfer or receive a distribution of your traditional IRA and then roll it over into the Roth IRA; the rollover must be completed within 60 days from the time you receive the distribution.

So, when is the best time and method of doing this? Since a conversion to a Roth IRA is a taxable event, the best time to convert is in a year when you expect to be in a low federal income tax bracket or when the value of the traditional IRA is down due to poor performance.

Figure the tax due on the conversion (treated as ordinary income) and then weigh whether you have sufficient funds outside the plan to pay the tax, and where there is substantial tax due on the conversion, whether you want to give up the future income that would be earned on the funds used to pay the tax. You can also reduce you tax bill by doing smaller conversions spaced out over several years. Once a conversion is complete, the funds grow tax-free in the Roth IRA, provided you stay within the rules established for Roth IRA accounts. (Learn more about Roth conversions in our article: The Simple Tax Math of Roth Conversions.)

(This question was answered by Steven Merkel.)

RELATED FAQS
  1. How do I roll over a Simple IRA to a Roth IRA?

  2. Is there a limit on how much I can move from my IRA to my Roth IRA?

    There is no limit on the amount that can be converted from your Traditional IRA to your Roth IRA. As you may already know, ... Read Answer >>
  3. Can I still contribute to my Roth IRA if my spouse earns over the requirement cap?

    My spouse makes over the amount allowed to contribute to a Roth IRA. However, I do not. Is it possible... Read Answer >>
  4. When you have opened up a backdoor Roth IRA can you make regular monthly contributions ...

  5. How can I fund A Roth IRA if my income is too high to make direct contributions?

    Roth IRAs are not available to you if you are a high income earner - unless you use the following strategy. Read Answer >>
  6. Can I convert my traditional IRA back to Roth by backdoor?

    I contributed $5,500 to Roth in 2015, but later converted to Traditional since MAGI exceeded limit. When ... Read Answer >>
Related Articles
  1. Retirement

    5 Reasons to Convert a Roth To a Traditional IRA

    Here's a quintet of cases when the traditional IRA trumps the Roth version.
  2. Options & Futures

    Must-Know Rules For Converting A 401(k) To A Roth

    In 2008, the IRS spelled out the details for converting employer-plan funds directly to Roth IRAs.
  3. Savings

    Why Now Is The Time For A Roth IRA

    Legislative changes in recent years make Roth IRAs worth a second look.
  4. Retirement

    2010: The Year To Convert Your IRA

    Thanks to fewer restrictions, it's now easier than ever to convert your traditional IRA into a Roth IRA.
  5. Taxes

    An Introduction to Roth IRAs

    Be sure to consider the tax benefits and the eligibility requirements of the Roth IRA.
  6. Saving and Spending

    Is a Roth IRA Conversion Right for Your Client?

    Here are the factors advisors and their clients need to consider when it comes to Roth IRA conversions.
  7. Retirement

    Don't Make These Top 10 Mistakes On Your Roth IRA

    Don't lose out on the benefits of a Roth by contributing too much, breaking rollover rules or making other avoidable errors.
  8. Retirement

    6 Reasons Not to Recharacterize Your Roth IRA

    If you're thinking of recharacterizing your Roth IRA into a traditional IRA account, here are six compelling reasons why you should reconsider.
  9. Retirement

    Funding Your IRA vs. Your Roth IRA, Which First?

    The answer depends on where you are in your career and personal life each year. Here are some scenarios and rules to think about.
  10. Retirement

    The Best Strategies to Maximize Your Roth IRA

    If a Roth IRA makes sense for you, here are ways to build the biggest nest egg possible with it.
RELATED TERMS
  1. Roth IRA Conversion

    A reportable movement of assets from a Traditional, SEP or SIMPLE ...
  2. Ordering Rules

    The order in which Roth IRA assets are distributed. Assets are ...
  3. Backdoor Roth IRA

    A method that taxpayers can use to place retirement savings in ...
  4. Qualified Distribution

    Distributions made from a Roth IRA that are tax and penalty free. ...
  5. IRA Rollover

    A transfer of funds from a retirement account into a Traditional ...
  6. Non-Qualified Distribution

    1) A distribution from a Roth IRA that occurs before the Roth ...
Trading Center