Moving money from traditional to roth ira

Common questions

If you have a non-Roth IRA at Schwab, call a Schwab investment professional at 866-855-5635 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 72 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 72), 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.

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