Roth IRA Conversion

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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.

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RELATED FAQS
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  3. I am rolling my 401(k) into an IRA. After a year, can I convert this amount to a ...

    There is no provision in the tax law that would allow anyone to convert taxable funds and treat it as a tax-free transaction, ... Read Full Answer >>
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