Rules on Converting Traditional IRA to Roth IRAs

The IRS has rules on converting traditional IRA to Roth IRAs. While a traditional IRA owner can convert from a traditional IRA to a Roth IRA easily, he or she will have to meet certain tests to convert to Roth IRAs.

What are the Rules on Converting Traditional IRA to Roth IRAs?

A traditional IRA owner can convert amounts from his or her traditional IRA account into a Roth IRA account if both tests below are met:

• the IRA owner must have modified adjusted gross income for the Roth IRA purpose of not more than $100,000
• the IRA owner is not married and filing separately

Exception to married filing separately and converting traditional IRA to Roth IRA

If an IRA owner is married but did not live with his or her spouse at any time during the tax year, then he or she is considered single for the purpose of converting traditional IRA to Roth IRA even if he or she files married filing separately.

How long do I have to withdraw from traditional IRA and fund Roth IRA?

The rules on converting traditional IRA to Roth IRAs state that if a traditional IRA owner withdraw all or part of the assets from the traditional IRA then he or she needs to put them into a Roth IRA within 60 days, similar to the rules of IRA rollover.

What is a conversion distribution of a Roth IRA from a traditional IRA?

The amount that the traditional IRA owner withdraw and put into the Roth IRA within 60 days is called a conversion contribution and the tax or 10% penalty tax on early withdrawal will not apply.

If a traditional IRA owner wants to withdraw from his or her traditional IRA and not put the whole amount withdrawn into the Roth IRA, then he or she can either:

• keep all of the funds and pay tax and early distribution penalty if applicable
• rollover some of the amount withdrawn from the traditional IRA into the Roth IRA, keeping some in the traditional IRA account
• rollover some of the amount withdrawn from the traditional IRA into the Roth IRA and keeping some as taxable income.