Step-by-Step Guide For converting Traditional Ira to Roth

Last Updated on 15th June 2022 by Jeffrey Camerda

If you are thinking of rolling over money from a regular IRA (or another kind of retirement account) to a Roth IRA, there are many factors you need to consider.

With a Roth conversion, you can take advantage of lower taxes in the future while also benefiting from the lower taxes you currently pay. Using a Roth conversion as a backdoor entrance into future tax-free retirement income is an option if your income is too high for you to make direct contributions to a Roth IRA.

If you’re thinking about making the switch, we’ll take you through the basics of doing so, as well as the pros and downsides of doing so. Read on.


  • The money in a conventional IRA or 401(k) is transferred to a Roth IRA via a Roth IRA rollover (or conversion).
  • Because Roth IRA withdrawals are tax-free, a Roth conversion may be a good idea if you anticipate your tax rate to rise in the future.
  • To circumvent the Roth IRA income cap for high-earners, you may do a rollover, sometimes known as a backdoor Roth IRA.
  • As a result, you’ll have to pay taxes on any money you convert.


How to Make a Roth IRA Contribution

Rolling money into a Roth IRA is quite simple, but it may cost a lot of money to do. As a rule of thumb, you should follow this procedure:

  • Invest in a typical IRA or 401(k) plan via your workplace (k). You’ll need to establish and fund an account first if you don’t already have one.
  • Take money out of your IRA or 401(k) account. You have 60 days from the day you receive an eligible rollover check from your other retirement account to transfer the funds to a Roth IRA account.
  • Invest the money in a Roth IRA. If you don’t already have a Roth IRA, you’ll start one after you complete the rollover.
  • Contribute and make money, and pay taxes on both. You contribute to a Roth IRA using post-tax money. In the event that you previously deducted your conventional IRA contributions, you’ll have to pay taxes on the amount. Keep in mind that this may seem like a simple task, but the tax burden may be enormous.


Roth IRA Methods for Converting Funds

A Roth conversion may be done in a variety of ways, depending on where your retirement assets are held. Indirect rollovers allow you to receive a payout from your conventional IRA in the form of a check that is sent to you within 60 days. After that, you have 60 days to transfer the money to your Roth IRA.

A trustee-to-trustee direct transfer from one financial institution to another is the simplest approach to converting to a Roth IRA. Please inform your traditional IRA service provider that you would want the money transferred into your Roth IRA account immediately from your current account.


If your conventional IRA and your Roth IRA are both held by the same company, you may request a transfer of funds from one to the other. This is referred to as a straight transfer or a same-trustee transfer.


Converting from an Employer-Sponsored Plan

Your employer-sponsored 401(k) or 403(b) plan may be converted too if you leave your work. An “in-service distribution” is a way to get your money while you’re still working under some retirement plans. However, you’ll often have to wait until you’re at least 59½ years old to do so.


Using a trustee-to-trustee transfer is the best way to move money from a traditional 401(k) or another employer-sponsored retirement plan into a Roth Individual Retirement Account (IRA). If you get a check from your employer, it must withhold 20% of your account amount for tax reasons. Deposit all of the money into a new Roth account, including 20% that you didn’t get. You have 60 days to do so. I don’t know where the information came from. If you miss the deadline, you’ll be hit with a 10% early withdrawal penalty on any money you didn’t transfer to a Roth IRA.


Advantages of a Roth Individual Retirement Account

Roth IRAs provide several advantages that conventional retirement plans don’t have. 

Withdrawals in retirement are also tax-free for Roth IRAs. You may also take your contributions out whenever you choose, no matter how old you are. Roth IRAs also don’t have required minimum distributions (RMDs) as long as you’re still alive and well. Since that’s the case, your heirs may inherit your savings account if you don’t need them.

With a Roth conversion, you can take advantage of lower taxes in the future while also benefiting from the lower taxes you now pay. Using a Roth conversion as a backdoor entrance into future tax-free retirement income is an option if your income is too high for you to make direct contributions to a Roth IRA.


Is It Time to Switch to a Roth IRA?

It’s up to you to determine whether or not to convert your traditional IRA to a Roth IRA based on this year’s tax law. The reason for this is that when money is transferred from a pre-tax retirement account to a Roth IRA or 401(k), taxes are due. You would have paid taxes on that money if you had deposited it to a Roth IRA at the beginning of the year.


Some sorts of conversions might be restricted or prohibited under the Build Better legislation now being debated in the Senate.


  • Tax-free growth and tax-free withdrawals in retirement are two of the many benefits of Roth IRAs.
  • Tax-free withdrawals from a Roth IRA are possible at any time for any reason.
  • In contrast to standard IRAs and 401(k) plans, Roth IRAs don’t need minimum withdrawals.




  • Conversion tax may be considerable.
  • Even if your tax rate drops in the future, you may not profit.
  • Even if you’re already 59½ years old, you must wait five years before you may receive tax-free withdrawals from your Roth following a rollover.


Rolling over a traditional IRA into a Roth IRA is most advantageous when;

  • Taxes may be paid using the money you have on hand. You may be tempted to pay your taxes with part of the converted money. But if you do that, you’ll lose out on years or decades of tax-free growth. Additionally, you may be hit with a 10% fine.


  • It doesn’t entail a hefty tax bill. Tax implications of converting money into a different currency might have serious consequences, so exercise caution while doing so. Taxes on Social Security and Medicare premiums may be higher for retirees who convert their retirement savings into a Roth IRA if the converted amount raises their income over specified limits. Having a tax professional on hand may help you go through the figures.


  • You’ve recently lost money in your IRA account. The less you have in your conventional IRA, the less money you’ll owe in taxes when you convert, and the more money you’ll accumulate tax-free. To avoid paying taxes when you submit your tax return next year, you may transfer your current retirement account balances to an Individual Retirement Account (IRA).
  • You may be at a lower tax rate because you worked less, changed jobs, or missed a bonus.


  • You may be able to minimize your taxable income by taking advantage of more itemized deductions than normal.


  • In the current year, your income is too high to make a Roth contribution, but you anticipate a higher tax rate in retirement.


Is it a good idea to convert my Traditional IRA to a Roth IRA?

Your tax condition is a determining factor. If this year’s tax rate is lower than the one you expect to be in when you retire, a rollover may be a good option. A year in which you were laid off or furloughed because of the coronavirus epidemic would be an excellent time to put part of your retirement savings into a Roth Individual Retirement Account. The second option is to maintain your savings where they are now, as long as you anticipate being in a lower tax band when you retire.


Is there a time when you shouldn’t convert to a Roth Individual Retirement Account (IRA)?

Roth conversions are not recommended for those who are nearing retirement or rely on IRA funds for daily expenses. The expense of converting to a Roth account stems from the fact that you must pay taxes on the money you are transferring. The money you spend up front isn’t worth it until you’ve saved enough money in taxes to make it worthwhile.

Is There a Maximum Amount I Can Contribute to a Roth?

No, the total amount you may transfer from another retirement plan into a Roth IRA is limitless. If you can stretch out your rollovers across numerous tax years, you may save money in the long run by doing so. Direct contributions to Roth IRAs are limited to $6,000 per year (or $7,000 per year for individuals over the age of 50) for the tax years 2021 and 2022.


How Long Do I Have to Wait Before I Can Withdraw Roth Rollover Funds?

A 10% early withdrawal penalty applies if you don’t wait five years after the rollover before you take your money. The rollover takes place at the beginning of the calendar year in which the rollover is complete. The monies in your conventional IRA may be withdrawn tax and penalty-free as early as Jan. 1, 2027, provided you transfer $5,000 from your regular to Roth IRA on Feb. 15, 2022.


On a Roth IRA Conversion, what are the taxes that are paid?

The IRS collects the federal tax on a Roth IRA conversion together with the rest of your income taxes that you owe for the year in which the conversion occurred. A Roth IRA conversion’s regular income can be offset due to losses and deductions reported on similar tax returns.


On a final note;

Making the switch to a Roth IRA has never been simpler. There is no limit on the amount of money that may be transferred from your current traditional IRA or employer-sponsored retirement account into a Roth Individual Retirement Account (IRA). Congratulate yourself when the conversion is complete. You’ve just signed up for tax-free growth for many years to come. A happy retirement can make all the difference in the world.

Jeffrey Camerda

Dr. Jeffery Camerda, PhD, is a financial planner who specializes in wealth management and retirement planning.With a PhD in Economics and Financial Planning, Jeffery represents the highest level of financial planning expertise and achievement in the USAIn addition to preparing you for a career in financial planning, a PhD in economics and finance also prepares you for academic pursuits, such as becoming a university professor in teaching or doing research.Here at the Wealth Builder, our financial advisory company was founded in 2007 and services all across the USA with over 16 years of expertise.In order to provide the finest advice and services, we pay close attention to the specific financial circumstances and requirements of each client.In order to guarantee that our clients don't get a sales pitch for insurance or investments, as well as a lack of conflict of interest from a prospective commission-bearing corporations, Jeffery focuses on fee-based services. Financial planning for wealth managers, financial well-being workshops, and personal financial planning packages are all part of the company's offering.Jeffrey Camarda, PhD, CFA, EA is also the founder of the Family Wealth Education Institute, is a member of the Financial Planning Association and serves as the Chairman of Camarda Wealth Advisory Group

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