Roth Conversion

Instructions

The IRA Conversion screen lets IRA account holders convert a Traditional, Rollover or SEP IRA account to an Roth IRA account. This is a full or partial conversion in which assets in the source IRA account are transferred to the destination Roth IRA account.

The following rules and procedures apply to IRA conversions:

  • For IRA Conversions from another Custodian/Trustee, you must open an Roth IRA account if you do not already have one.

  • For IRA Conversions from a Traditional IRA or Rollover or SEP IRA account, you must open a Roth IRA if you do not already have one.

  • If you request a full conversion, your existing Traditional/SEP IRA account must remain open even if the balance is zero as long as the client has a Roth IRA with assets.

  • The state of legal residence in which you live must the be same for both the source IRA account and the destination Roth IRA account.

  • The trading permissions must be the same in both the source IRA account and the destination Roth IRA account.

  • A conversion to a Roth IRA is subject to federal and possibly state income tax withholding, unless you elect not to have withholding apply. You may either elect not to withhold federal income tax or you may elect to withhold at a rate not less than 10%.

  • If federal income tax is withheld, state income tax may also be withheld. Where state income tax applies, the rate will be no less than the state's minimum withholding requirement. Your state of residence (the legal address for your IRA account), will determine your state income tax withholding requirement.

    Consult your tax advisor about your tax withholding requirement.

  • To qualify for an IRA conversion, the total cash available in your Traditional or SEP IRA account must be greater than the federal tax amount + the state tax amount + 2% of total assets being converted. Stated as an equation, this requirement is:

    Total Cash Available > Federal Tax Amount + State Tax Amount + 2% of total assets being converted

  • Transfers of securities positions from a Traditional or SEP IRA to a Roth IRA will only be accepted between accounts with matching names and taxpayer identification numbers.

  • Refer to IRS Publication 590, Individual Retirement Arrangements and consult your tax advisor regarding your individual tax situation when deciding to convert.

  • You are eligible to convert to a Roth IRA if your modified AGI for the year that you convert does not exceed $100,000. Individuals who are married filing separate returns are eligible only if they live apart for the full year. For 2010, the IRS has eliminated these requirements and added the option to split the conversion income (and the tax due) over two years with half reported in 2011 and in 2012, unless you elect to report the full amount in 2010. We strongly suggest you consult your tax advisor before you convert an IRA.

To complete a Roth Conversion, please take the steps outlined below.

  1. Click Transfer & Pay > Transfer Funds.

  2. The Account Selector will open. Select the account you want to use for this transaction, or use the search function in the Account Selector to find the desired account. Click Continue to submit your account selection and close the Account Selector.

  3. Select Roth Conversion.

    The Roth Conversion page in Portal

  4. Select the Roth IRA Account ID from the drop-down selector.

    The Roth IRA Account Selector in Portal

  5. This screen displays rules for converting your IRA to a Roth IRA as well as your current IRA account Total Equity and Cash Available for Withdrawal. You also have the opportunity to withhold federal and, if applicable, state income taxes.

    • Optionally withhold federal income tax by selecting YES and then entering the percentage of the distribution to withhold. We calculate and display the amount of Total Federal Withholding for you.

    • If you live in a state that has a state income tax, optionally withhold that state income tax by selecting YES and then entering the percentage of the distribution to withhold.

      The Roth Conversion Rules and Withholding in Portal

  6. Review your IRA conversion information and then click Continue.

  7. Your changes have been submitted.

IRS Circular 230 Notice: The information contained in this article is provided for information purposes only, is not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statues or regulations and does not resolve any tax issues in your favor. Refer to IRS Publication 590, Individual Retirement Account for additional information on IRAs in general and consult your tax advisor about your individual tax situation.

 

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