Roth IRA Conversion
Investors may convert a
traditional IRA to a Roth IRA. Taxes must be paid on all pre-tax dollars being
converted from the traditional IRA. Converting to a Roth
IRA would allow investors to take advantage of the tax-free benefits of the
Roth IRA.
Eligibility
• All individuals, married or single, with an adjusted
gross income of $100,000 or less may convert to a Roth
IRA. Married individuals
filing separately cannot make a conversion.
Note: The $100,000
restriction is eliminated in 2010.
Taxation
• Ordinary income taxes must be paid on all pre-tax
dollars converted from the traditional IRA to the Roth IRA in the year of the
conversion.
The 10% premature penalty tax that normally applies to
distributions taken before age 59 1/2 does not apply to converted amounts.
.
Distributions
• Distributions from the Roth IRA are not
mandatory at age 70 1/2. Also, distributions can occur tax- and penalty-free
if the distributions arc considered "qualified."
• A distribution is considered qualified
when assets have been held in the Roth IRA for a minimum of five taxable years
(beginning with the first taxable year for which a Roth contribution was made)
and one of the following events occur:
1) attainment of age 59 1/2;
2) disability;
3) the purchase of a first home; or
4) death.
• A non-qualified
distribution is subject to tax and penalty to the extent that it exceeds total
contributions. Exceptions may apply.
Rollovers
• A rollover from a traditional IRA to a Roth IRA
must occur within 60-days from the date of
withdrawal or it may be considered a distribution. Normally, only one rollover
per account may occur in a twelve-month period, however, this rule is waived
in instances of conversion.
Before
making decisions about Individual Retirement
Accounts, investors should consult their lax advisor. Stifel Nicolaus does not
offer tax advice.
