Roth IRA Transfer Rules and Process

Roth IRA transfers have grown in popularity over the last few years, as investors anticipate higher government taxes in the future. There are a few restrictions to transferring your funds to a Roth IRA, including the fact that you can only contribute to a Roth IRA if you have earned income from a job, and you cannot save more than you have made. There are also certain income brackets individuals must fall into in order to qualify, and these eligibility requirements change each year. It is recommended that you consult a qualified tax attorney when considering a Roth IRA transfer.

If you are eligible, a Roth IRA can prove to be a smart investment, especially considering the tax benefits. If you’re considering transferring your assets, the following steps can be used as a guideline as you work hand-in-hand with Janguard to secure your financial independence.

  1. Which assets are eligible for a Roth IRA transfer?

Once you are firm in your decision to go with a Roth IRA as opposed to a Traditional IRA, the first step is to determine which of your assets are eligible for conversion. All assets held in traditional IRAs are eligible, as well as inactive 401K investments or 403B plans.

However, higher balances in your retirement account(s) garner a higher tax bill if converted. It is also necessary to take into account the entire value of your IRAs when making a transfer, meaning if you have multiple IRAs you are required to convert an equal amount from each account, or take all of the funds from each account and move them into your new Roth IRA. Under IRA rules, you cannot pick and choose assets from individual accounts to convert. An exception is made if your contributions were previously tax deductible (if they are coming from another Roth IRA).

  1. Getting professional help on a Roth IRA transfer

Managing financial assets can be confusing, especially when retirement accounts are involved, so it’s best to take advantage of expert knowledge when such knowledge is available. A CPA or other qualified tax adviser can help you make the most of your Roth IRA.

When it comes to selecting a custodian, filling out the Roth IRA transfer paperwork, and choosing your investments, Janguard’s IRA advisers are on hand five days per week to answer your non-tax questions, help you reach your goals and complete the transfer in a timely manner.

  1. Tax questions around your Roth IRA transfer

If you are in a higher tax bracket, you will pay higher taxes when converting to a Roth IRA. If you expect to pay a higher tax rate in retirement, it makes sense to convert and pay taxes upfront and remain tax-free in retirement. It is also crucial to consider how much time you have before reaching retirement, when you may need to use the money.

Calculating your tax bill for conversion is much easier than many people think. Take the full value of your IRA and subtract your nondeductible contributions. This is the taxable value of your assets. Then, multiply that amount by the current federal tax rate and the current state tax rate to get your final bill. That’s it! Now you can better prepare your finances to conduct the transfer.

As with any situation in which payments to Uncle Sam are involved, it is wise to run the numbers past a tax attorney or CPA to ensure compliance with current IRS regulations.

You have two options to pay your Roth IRA transfer tax bill. You can either pay your taxes immediately after the transfer, if you can afford to do so, or defer it until later. Deferring your bill involves spreading out the cost over the following two years.

Completing your Roth IRA transfer

Welcome to the final step. Let the custodian of your IRA know how you want your transferred assets to be invested, how and when you want to pay taxes, and who you would like to name as a beneficiary of your funds upon death. Fill out the paperwork, submit it, and you’re on your way to a thriving Roth IRA.

There you have it! Converting a Traditional IRA into a Roth is a fairly straightforward process. If you would like our help transferring your retirement account into a Roth IRA, or if you already have a Roth IRA and would like to transfer the account to a new custodian, give Janguard a call at 800.571.6341 today and secure your financial independence. Want more information on Roth IRAs? Be sure to read The Definitive Guide to Roth IRAs.