DEFINITION of 'Roth IRA Conversion'

A reportable movement of assets from a Traditional, SEP or SIMPLE IRA to a Roth IRA, which can be subject to taxes. A Roth IRA conversion can be advantageous for individuals with large traditional IRA accounts who expect their future tax bills to stay at the same level or grow at the time they plan to start withdrawing from their tax-advantaged account, as a Roth IRA allows for tax-free withdrawals of qualified distributions.

BREAKING DOWN 'Roth IRA Conversion'

A conversion may be accomplished by a rollover of assets directly between the trustees of the Traditional and Roth IRAs, or by the IRA owner distributing the assets from the Traditional, SEP or SIMPLE IRA and rolling over the amount to the Roth IRA within 60 days of receiving the distributed amount. It is recommended that any such conversions be done following a meeting with a financial planner or personal tax professional, as there may be major tax implications if not done appropriately.

RELATED TERMS
  1. Roth IRA

    A Roth IRA is an individual retirement plan that bears many similarities ...
  2. IRS Publication 590-B: Distributions ...

    IRS Publication-B outlines the rules for making distributions ...
  3. Ordering Rules

    The order in which Roth IRA assets are distributed. Assets are ...
  4. Individual Retirement Account - ...

    An investing tool used by individuals to earn and earmark funds ...
  5. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
  6. Qualified Distribution

    Distributions made from a Roth IRA that are tax and penalty free. ...
Related Articles
  1. Financial Advisor

    Roth IRA Vs. Traditional IRA

    Learn more about the differences between a Roth IRA and traditional IRA.
  2. Retirement

    How a Roth IRA Works After Retirement

    What retirees need to know about taxes, distributions and passing on your unspent savings to the next generation.
  3. Retirement

    Why a Roth IRA May Be the Better Choice

    Both traditional and Roth IRAs are good for funding retirement, but here's why the Roth is better.
  4. Financial Advisor

    Why Roth IRA Investors Tend to be More Aggressive

    New data from the Investment Company Institute highlights the differences between Roth and IRA holders.
  5. Retirement

    The Best Bet for Taxes: Traditional or Roth IRAs?

    Choosing a Traditional IRA over a Roth IRA, or vice versa, depends on financial situation and long-term goals, especially if you want to trade.
  6. Retirement

    Roth IRAs: Investing And Trading Do’s And Don’ts

    Just what can you invest in in a Roth IRA? And what constitutes a prohibited transaction?
  7. Retirement

    Roth IRA Contribution Limits for 2017 Taxes

    Discover the benefits of Roth IRA accounts and how much you can contribute for your retirement. Learn which IRA plan is best for you.
  8. Retirement

    A Layman's Guide to Traditional and Roth IRAs

    Traditional and Roth IRAs have similarities and differences, but both help you save for retirement.
Hot Definitions
  1. Tax Liability

    The total amount of tax that an entity is legally obligated to pay to an authority as the result of the occurrence of a taxable ...
  2. Preferred Stock

    A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares ...
  3. Net Profit Margin

    Net Margin is the ratio of net profits to revenues for a company or business segment - typically expressed as a percentage ...
  4. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  5. Current Ratio

    The current ratio is a liquidity ratio measuring a company's ability to pay short-term and long-term obligations, also known ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center