Converting, Transferring, And Rolling Over Traditional IRAs

It is possible to convert a traditional individual retirement account into a Roth IRA, but it is not possible to convert the account the other way. Conversion of all or part of a traditional IRA results in the converted funds being taxed as income in the year they are converted. The exception to this is non-deductible sets.

Prior to 2010, there were 2 circumstances that prevented this type of conversion. One was is the Modified Adjusted Gross Income of the owner was more than $100,000. The other was if the owner’s tax filing status was Married Filing Separately. Since 2010, however, legislation as part of the Tax Increase Prevention and Reconciliation Act were modified and removed. Depending on the timing of the conversion, there may actually be a benefit from it in addition to the tax. The taxes due need not deplete the account balance converted, so if the taxes are paid from another taxable account, the effect is as if the income from those dollars are sheltered from tax.

Transferring and IRA is a way of moving these sheltered assets between financial institutions. This is normally initiated by the institution receiving the funds and is not reported to the IRS. A request would be sent to the disbursing institution for a transfer and in return, the receiving institution would send a check made payable to the original institution. It can be helpful if you read some gold ira rollover reviews before deciding on your retirement plan.

An IRA can also be used to move money between institutions. These are also referred to as a 60-day rollover, as the original institution will make a distribution directly to the owner, who will then have 60 days to roll the money over to the receiving institution. If this rollover is not made within the allotted time limit, the funds will not retain their IRA status. This can only be done once in a calendar year with the same funds. Unlike a transfer, the rollover is reported to the IRS and this must be done so by the owner of the IRA. Once the rollover is completed, the owner will receive a form to report on their taxes so as to avoid incurring any tax consequences of the initial distribution. Failure to file this form with taxes at the end of the year will mean the owner has to pay taxes on the distribution as if they were income. Speaking with a financial professional can help you understand the options and regulations for uses of your IRA.