How can an individual convert a traditional IRA to a Roth IRA?

A traditional IRA can be converted to a Roth IRA by:

  • Rollover – A distribution from a traditional IRA can be contributed to a Roth IRA within 60 days after distribution.
  • Trustee-to-trustee transfer – The financial institution holding the traditional IRA assets will provide directions on how to transfer those assets to a Roth IRA with another financial institution.
  • Same trustee transfer – As with the trustee-to-trustee transfer, the financial institution holding the traditional IRA assets will provide directions on how to transfer those assets to a Roth IRA. In this case, things should be simpler because the transfer occurs within the same financial institution.

A conversion results in taxation of any untaxed amounts in the traditional IRA. Also, the conversion is reported on Form 8606, Nondeductible IRAs.

How do I initiate a cash transfer to our platform using the paper Incoming Transfer Form?

To initiate a transfer of cash to your account with us, please complete the Incoming Transfer Form and select either Option A) Complete Transfer or Option B) Partial Transfer and select Cash.  Please enter the amount of cash you would like to transfer in the line beside the Cash option. If selecting a “Complete Transfer”, please note that we cannot hold publicly traded stock, bonds, or mutual funds. This means that all assets must be liquidated prior to submitting the request. Incoming Transfer Forms must be sent to us so that we can execute the document and include a Letter of Acceptance with our submission to your current custodian. Sending this form directly to them without our signature or letter of acceptance will result in the rejection of your transfer request. This form can be sent to us via fax or email (if the resigning custodian accepts faxed transfer requests) or mail (required if the resigning custodian requires original transfer requests).

What is the difference between an indirect rollover and a direct rollover?

A direct rollover is a direct movement of assets from an eligible retirement plan to an IRA or another eligible retirement plan, or from an IRA to an eligible retirement plan, in which the individual does not take constructive receipt of the assets. An indirect rollover is a distribution of IRA or eligible retirement plan assets to an individual (individual takes receipt of the assets) that within 60 days is rolled over to the same type of IRA or to another eligible retirement plan. The amount sent to the new financial institution must be the same amount distributed from the old financial institution. This means that if funds were withheld for taxes, the amount withheld must be made up for by the client. Funds must be sent to the new financial institution within 60 days of constructive receipt of the funds from the old financial institution.

How is a transfer different from a rollover?

A transfer is a direct, nonreportable movement of assets, generally between two IRAs of the same type. A rollover is a reportable movement of assets between IRAs, between IRAs and eligible retirement plans, or between eligible retirement plans. Please note that as of 2015, the IRS has issued limitations on the number of IRA-to-IRA Rollovers. Only one IRA-to-IRA rollover can be done per 12-month period. Please see IRA One Rollover Per Year Rule for additional information regarding this change.

What is a transfer?

A transfer is a direct movement of assets, generally between two IRAs of the same type (i.e., Traditional IRA to Traditional IRA, Roth IRA to Roth IRA, etc.) from one financial institution to another in which the account owner does not take constructive receipt of the assets.