Roth Conversion Distribution

This section of Roth IRAs information website discusses Roth Conversion Distribution. Roth conversion distribution is very useful when the owner of traditional IRAs want to convert those IRAs to Roth IRAs.

What is a Roth IRA conversion?

A Roth IRA conversion is a transfer from an existing deductible or non deductible IRA to a Roth IRA.

The Roth IRA conversion of the tax deductible contribution and growth (on both deductible and non deductible Roth IRA contributions) is treated as a taxable Roth IRA conversion distribution, but no 10% penalty will apply even if the converter is under age 59½.

To be eligible for a Roth IRA conversion, the tax payer' s Modified Adjusted Gross Income (MAGI), for both single tax filers and joint tax filers (not available to married filing separately), cannot exceed $100,000 (excluding any taxable income resulting from the conversion) during the year of Roth IRA conversion.

Beginning in 2005, MAGI will not include required minimum distributions from IRAs for purposes of determining the $100,000 limit.

Roth IRA conversions are reported on IRS tax Form 8606 filed with the taxpayer's tax return for the year of the Roth IRA conversion.

When can Roth conversion distribution be made tax free and penalty free?

Roth IRA conversion distributions, including earnings, are tax free and penalty free if

• made after 59 ½ and

• more than five years after the initial contribution was made.

There are no required minimum distributions for Roth IRAs.

What rules apply to Roth IRA beneficiaries?

Generally, if the Roth IRA owner was entitled to tax free withdrawals from Roth IRA, the beneficiaries of the Roth IRA are also entitled to tax free withdrawals from the Roth IRA.

Payments received by beneficiaries from Roth IRA distributions are not penalized regardless of the beneficiaries' age.

Roth IRA beneficiary options are the same as the options for a Traditional IRA beneficiary when the IRA owner died before age 70 ½.