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Conversion

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Roth IRA Conversion

A Roth IRA conversion lets you move some or all of your retirement savings from a Traditional IRA, Rollover IRA, SEP-IRA, SIMPLE IRA, or 401(k) into a Roth IRA. There are no age limits to convert, and as of January 1, 2010, the IRS eliminated Roth IRA conversion income restrictions, allowing you to start taking advantage of unique Roth IRA benefits even if your current income disqualifies you from making additional contributions after converting.

You will have to pay current income tax on your Roth IRA conversion amount, but moving your money can be advantageous if you think you'll be in the same or higher tax bracket when you withdraw, you have a long time horizon, and you can pay the conversion tax in cash—or, if you want to leave a tax-free financial legacy to your heirs.

Need IRA help? Call 866-855-5636 anytime.

Open a Schwab Roth IRA today. Apply Now

Is a Roth IRA right for you?

The decision to initiate a Roth IRA conversion depends on your personal and financial situation, and should factor in your potential for a greater ending portfolio value, your estate planning goals, and your tax-risk diversification options. Answer a few quick questions to see whether converting is right for you, and get tailored next steps. 

To get a better picture of the unique advantages that a Roth IRA offers, check out our Roth IRA vs. Traditional IRA infographic.

Roth IRA Conversion Quick Assessment

Your next steps
  1. 1.

    Do you currently have money in a retirement account, such as a Traditional IRA, Rollover IRA, old 401(k), or other employer-sponsored plan?

    Why this matters
    Close
    If you have money in at least one eligible retirement account listed here, or in a SEP-IRA or SIMPLE IRA,* you may be able to convert to a Roth IRA. Conversion could offer unique benefits, but keep in mind that whether it’s right for you depends on your personal situation and your financial goals. *SIMPLE IRAs can’t be converted until two years after they’ve been established.
    Next
  2. 2.

    Do you have only one Traditional IRA with only post-tax contributions?

    Why this matters
    Close
    If you’ve made only after-tax contributions (also known as post-tax or nondeductible contributions) to a Traditional IRA, you’ve already paid income taxes on those contributions and won’t be required to pay taxes again to convert those funds to a Roth IRA. However, your earnings on those funds will still be taxed.
    Next
  3. 3.

    Are you planning to leave some or all of your IRA assets to your heirs?

    Why this matters
    Close
    If you don’t think you’ll need to access your IRA for retirement expenses, a Roth IRA offers some unique estate planning benefits. You won’t have to take required minimum distributions (RMDs), and your beneficiaries can make income-tax-free withdrawals during their lifetimes.
    Next
  4. 4.

    Do you have at least five years before you plan to access your converted IRA funds?

    Why this matters
    Close
    Leaving your assets in your converted Roth IRA for at least five years gives you more time for potential tax-free growth, and it can help you recoup the costs of conversion. Additionally, if you’re under age 59½ and you need to access the funds you convert in fewer than five years, you could be charged an early withdrawal penalty.
    Next
  5. 5.

    Do you think your income tax rate when you make your first withdrawal of the converted funds will be higher or lower than it is at the time you convert?

    Why this matters
    Close
    If your income tax rate when you make your first withdrawal is lower than it is now, you’d pay less in taxes by not converting to a Roth IRA. However, whether you estimate that your future income tax rate will be more, less, or about the same as it is now, it’s also important to consider that tax laws may change over time, and they will be a critical factor in how much you’ll pay in taxes in the future.
    Next
  6. 6.

    If you convert, can you afford to pay all of the conversion taxes from a non-IRA account?

    Why this matters
    Close
    If you convert to a Roth IRA, you’ll need to pay income taxes on the amount that you convert. Using your IRA funds to cover these taxes will considerably diminish any benefits you’d get from converting.
    Next
  • Answer a few quick questions on the left to explore whether a Roth IRA conversion could make sense for you. You’ll also get tailored next steps, based on your responses.
  • It’s unclear if a Roth conversion will help you meet your financial goals.

    Making the decision to convert is complex, so further exploration and a closer look at your personal situation will likely be helpful. Take a look at the suggested next steps to see how Schwab can help you think through the decision.

    Start Over
  • Conversion is not possible at this time.

    If you don’t have savings in an eligible retirement account, you don’t currently have any funds that can be converted to a Roth IRA.

    Suggested next steps

    For personal assistance with building a plan for your retirement, contact a Schwab investment professional at 888-298-6558.

    Start Over
  • Consider converting all or some of your IRA savings to a Roth.

    Based on your responses, it looks as if a full or partial Roth IRA conversion could make sense for you. Here’s why:

    Since you have only one retirement account that contains only post-tax contributions, you’ve already paid income taxes on them. If you convert these funds, you’ll gain the benefits of a Roth IRA and only be required to pay taxes on earnings—not on your contributions. Of course, making the decision to convert is complex, and there are many factors to consider. Take a look at the suggested next steps to see how Schwab can help you think through all the considerations.

    Start Over
  • Consider converting all or some of your IRA savings to a Roth.

    Based on your responses, it looks as if a full or partial Roth IRA conversion could make sense for you. Here’s why:

    You indicated that you plan to leave some or all of your IRA funds to your heirs. With a Roth IRA, you won’t have to take required minimum distributions (RMDs), and your beneficiaries can make income-tax-free withdrawals during their lifetimes. Of course, making the decision to convert is complex, and there are many factors to consider. Take a look at the suggested next steps to see how Schwab can help you think through all the considerations.

    Suggested next steps
    Start Over
  • Conversion may not be right for you.

    Based on your responses, it looks as if a Roth IRA conversion may not make sense for you at this time. Here’s why:

    No matter your age, leaving your assets in your converted Roth IRA for at least five years can help you recoup the costs of conversion and give you more time for potential tax-free growth. Additionally, if you’re under age 59½ and withdraw the converted funds before the five-year window is up, you could be charged an early withdrawal penalty. Of course, making the decision to convert is complex, and there are many factors to consider. Take a look at the suggested next steps to see how Schwab can help you think through all the considerations.

    Start Over
  • Conversion may not be right for you.

    Based on your responses, it looks as if a Roth IRA conversion may not make sense for you at this time. Here’s why:

    If you think your income tax rate will be lower when you make your first withdrawal, higher future taxes may not be a concern. However, it’s important to keep in mind that your income tax rate may rise in the future even if your income is lower than it is now. Of course, making the decision to convert is complex, and there are many factors to consider. Take a look at the suggested next steps to see how Schwab can help you think through all the considerations.

    Start Over
  • Consider converting all or some of your IRA savings to a Roth.

    Based on your responses, it looks as if a full or partial Roth IRA conversion could make sense for you. Here’s why:

    Because you can afford to pay all of the conversion taxes without dipping into your IRA funds, you won’t be compromising your opportunity to benefit from potential long-term growth. In addition, you’ll avoid the 10% early withdrawal penalty that would otherwise be applied if you withdraw funds before you turn 59½. Of course, making the decision to convert is complex, and there are many factors to consider. Take a look at the suggested next steps to see how Schwab can help you think through all the considerations.

    Start Over
  • Consider converting all or some of your IRA savings to a Roth.

    Based on your responses, it looks as if a full or partial Roth IRA conversion could make sense for you. Here’s why:

    Even if you can’t afford to pay all of the conversion taxes on the total value of your IRA, you may want to consider a partial conversion. With this strategy, you could still benefit from some income-tax-free withdrawals in retirement, while paying less in conversion taxes. Of course, making the decision to convert is complex, and there are many factors to consider. Take a look at the suggested next steps to see how Schwab can help you think through all the considerations.

    Start Over

Roth IRA Conversion FAQs

If you have a non-Roth IRA at Schwab, call a Schwab investment professional at 866-855-5636 to start the conversion process.

If you have a non-Roth IRA or a 401(k) somewhere other than Schwab, you have two options:
  • Transfer your non-Roth IRA or your 401(k) to an IRA at Schwab. Once the transfer is complete, you can initiate the conversion to a Roth IRA.
  • Convert your non-Roth IRA or your 401(k) to a Roth IRA while it is still being held at the other institution. Once the conversion is complete, you can start the transfer to Schwab.

You will be responsible for paying income taxes on any funds you convert, aside from prior after-tax contributions. Note that even if you want to do a full conversion of your traditional assets to a Roth IRA, you don't have to do it all at once. You can consider doing a partial conversion if:
  • Reporting an entire conversion will bump you into a substantially higher tax bracket. Keep in mind that if you only get bumped up slightly, say, from 25% to 28%, the conversion benefits might still outweigh the difference in income tax.
  • You don't have enough cash available outside your retirement account to pay the taxes for a full conversion. It's important to pay with non-IRA assets, because you can incur a 10% early distribution penalty if you're under 59½, and you will lose the benefits of tax-free growth on the amount you take out. The fee you pay could very well eliminate the advantage of converting in the first place.
If you do convert to a Roth IRA, you'll need to complete IRS Form 8606 to report your "basis" (if any) in your Traditional IRA, and to report your taxable conversion income to the IRS.
Yes. When you convert to a Roth IRA, you must pay taxes on the amount converted from pre-tax contributions, plus any investment gains. If you've made nondeductible contributions to your non-Roth IRA in the past, you can't pick and choose which portion of the non-Roth IRA funds you want to convert to a Roth.

The IRS looks at all assets within a non-Roth IRA as a whole when it comes to distributions, including Roth conversions. In accordance with the aggregation rule, Traditional IRA balances are combined so that the amount converted consists of a prorated portion of taxable and nontaxable money.
Unlike a Traditional IRA, a Roth IRA doesn't require a person age 70½ or over to take minimum distributions, which means your account can continue to grow tax-free until you pass it on to your heirs. A spouse inheriting a Roth IRA will also not be required to take minimum distributions. Because you pay the conversion tax up front, you also eliminate the income tax your heirs would otherwise have to pay on withdrawals.

Converting to a Roth IRA will reduce your taxable estate by the amount of income tax you pay to convert. The Roth IRA balance will still be included in your taxable estate.
You should be able to convert all or part of your eligible retirement assets to an existing Roth IRA. Check with a Schwab investment professional or your account provider.
No. You can convert your eligible retirement assets directly into a Roth IRA without going to cash investments first.
If an RMD is required for a given year (including the year you reach the age of 70½), you'll need to withdraw the mandatory amount before converting any remaining account assets to a Roth. The RMD that you withdraw from a Traditional, Rollover, SEP, or SIMPLE IRA cannot be converted to a Roth IRA or left in the original account.
Reversing a Roth conversion is called a recharacterization. If you filed your original return on time, the IRS will grant you an automatic six-month extension if you need to recharacterize. You may recharacterize all or part of your conversion, including applicable earnings. Both the original conversion and recharacterization are tax-reportable events. You may reconvert a recharacterized amount on January 1 following the taxable year in which the amount was first converted or 30 days after the recharacterization, whichever is later. Consult your tax advisor and IRS Publication 8606 for more information.

Take the next step.

Open a Roth IRA today.     Apply Now or call 866-855-5636.