If you’re considering to rollover your Traditional IRA account into a Roth IRA account, you may be wondering whether or not you even qualify to make this type of rollover. Historically, there were only two Roth IRA qualifications that you needed to meet before making this rollover. The first qualification was that you had to be able to pay taxes on the money you were rolling over, and the second was that your household adjusted gross income couldn’t exceed $167,000 dollars a year.
Recently, though, the standards for Roth IRA conversion eligibility have changed. Starting in 2010, there are no longer any income restrictions on those who are seeking a conversion. If you have money in a traditional IRA, you can convert it into a Roth IRA, regardless of your household income. Keep in mind, though, that these limits only apply to Roth IRA conversions – if your income is above certain guidelines, you won’t be able to contribute any additional funds to the account.
If you qualify for the Roth IRA rollover, you can distribute the entire balance of your traditional IRAs into the account without a problem. The only thing that you’ll need to do is to ensure that you have the appropriate amount of taxes deducted from the IRA to cover your IRS needs – or enough funds on hand to pay your tax bill if you choose to convert the entire amount without withholding any money for taxes up front.
Of course, you might be wondering why anyone would want to open a Roth IRA if they’re just going to have to pay taxes on the amount that they transfer in. The answer is that, since you don’t have to pay taxes again when the money is withdrawn, all of the earnings that come from a Roth IRA account are tax free. For those who are worried that taxes are going to increase in the future, a Roth IRA rollover will allow them to invest with less stress.
To protect your 401k rollover to Roth IRA from unnecessary penalties, you’ll most likely want to go with a direct transfer to move your money between accounts. This is a type of transfer that’s arranged directly between the banks, so that you never see a check for the balance of your account funds. Doing it this way – instead of through an indirect transfer – will help to ensure that the proper amount for taxes will be withheld and that you won’t end up owing additional funds at the end of the year when you file your taxes.
So, if you’re interested in a Roth IRA distribution from your traditional IRA account and you meet the requirements described above, you should go to your financial advisor or your bank and set up a Roth IRA account. After this is done, you can then have the bank complete the Roth IRA conversion from your existing account. If you like, you can even ask them to withhold additional taxes, just to make sure that you’re adequately covered when it comes to taxes and the IRS.