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What's a Roth IRA conversion?

A Roth IRA conversion is one where a customer takes pre-tax funds from a Traditional IRA, SEP IRA, SIMPLE IRA, or employer-based plan (401(k), 403(b), TSP, etc) and moves them into a Roth IRA rather than a Traditional IRA.

The amount of funds moved into the Roth IRA are added to the customer’s tax return as taxable income in the year of the conversion. They are not subject to 10% early withdrawal penalty, only income tax. We cannot tell the customer his tax rate, as it depends on his tax bracket. He would have to check with his tax professional if he has further questions.

At least 5 years must pass from the conversion date before the funds can be withdrawn without a 10% penalty (and also potentially income tax on top of that).

 

Note: No contents of this blog may be relied upon as tax, legal, or financial advice, as they have not been tailored to you and have not been reviewed by any attorney, financial advisor, or tax professional. For any questions related to your own specific situation, please consult with your own attorney, tax professional, and/or licensed financial advisor.