First, some history: Roth IRAs were initially envisioned as a way for people to save for retirement, but still be able to access the money without penalties. It was thought that being able to withdraw money without penalties would attract younger savers.
At first, eligibility was limited. Whether you wanted to open a Roth IRA or convert an existing IRA into a Roth, you had to be beneath the income limit. Only people making less than $100,000 a year could convert their plans. In 2019, that’s now $122,000 for singles and $193,000 for couples.
While opening a Roth IRA is still limited to lower-income savers, the conversion cap was removed in 2010. Higher-income investors can obtain the benefit of tax-free withdrawals in retirement. Also, since there are no required minimum distributions (RMDs) for Roth IRAs during the lifetime of the account owner, the entire amount of money saved in a Roth can be passed down to your beneficiaries.
How Does It Work?
1. Contribute to a Traditional IRA
First, you need to have something to convert. This means having a traditional, SIMPLE or SEP IRA with a balance.
2. Contact us at Trajan Wealth
We give a complimentary review to make sure a Covert Roth conversion is in your best interests.
3. Initiate Covert Roth IRA Conversion
As your new provider, we initiate a transfer from your traditional IRA to a Roth IRA. To avoid penalties or additional taxes, we deposit the full amount of funds you started to convert within 60 days.
4. Report Roth IRA Conversion
Once you’ve completed your Roth IRA conversion, you must report your conversion and pay taxes on the balance that you converted. To ensure that you report your Roth IRA conversion correctly, we can help prepare your taxes.
5. Let Your Covert Roth IRA Grow
After completing your Covert Roth IRA conversion, the last step is let your account grow tax-free. You must hold your Roth IRA for at least 5 years before taking distributions. However, if you’re age 59 1/2 and older and have held your Roth IRA for 5 or more years, you can take tax-free withdrawals from your account.
Talk with us to dig more into the details of a Roth IRA conversion.