How to Do a Roth IRA Conversion in 5 Steps (or less)

A Roth conversion turns your Traditional IRA (or 401k) into a tax-free, Roth IRA.

How to convert your Traditional IRA to a Roth IRA

Should You Consider a Roth Conversion?

Roth IRAs are considered one of the best ways to save by many investors and experts because of the tax benefits they offer. Similar to other retirement accounts, you can realize gains on your investments without incurring taxes. However, unlike Traditional IRAs or 401(k)s, you also don’t pay taxes on your withdrawals in retirement.

TLDR; What makes the Roth IRA unique is after you put the money into the account, you (or your heirs) never have to pay taxes on it again.

Is Now a Good Time for a Roth Conversion?

When you convert your Traditional IRA to a Roth IRA, you have to pay income taxes on the money you convert. Because of this, investors tend to make conversions in the following scenarios:

1. The market is down: When your investment portfolio is down, you have less “income” to pay taxes on when you make a conversion.
2. When tax rates are low: If you expect taxes to go up in the future, it could be advantageous to do a conversion now and pay taxes now to create tax-free income for your future.
3. When you’re in a lower tax bracket: If you’re in a lower tax bracket than you expect to be in the future, you could save on taxes by doing a conversion now.

How to Convert your Traditional IRA to a Roth IRA

If you already have a Traditional IRA with Choice

Traditional to Roth (with Choice)

1. Open a Roth IRA: Log in to your Choice account on your web browser, click on your profile in the upper right-hand corner, and select “Add an Account.”
2. Initiate the Conversion: You can initiate the Roth conversion by filling out this Conversion Instructions Form. If you need help filling out the form, you can watch the step-by-step instructions here.

How to Convert your Traditional IRA to a Roth IRA

If you have a Traditional IRA with a different custodian (Fidelity, Vanguard, Wealthfront, etc.)

1. Create your Choice Account: Install Choice on iOS, Android, or sign-up on desktop here.
2. Open a Traditional IRA: After creating your Choice account, choose to open a Traditional IRA. You cannot convert an IRA with a different custodian to a Roth with Choice.
3. Transfer your IRA: Complete the Account Transfer form to initiate a transfer from your current custodian to Choice. Our service team will help you along the way.
4. Open a Roth IRA: Log in to your Choice account on your web browser, click on your profile in the upper right-hand corner, and select “Add an Account.”
5. Initiate the Conversion: Once the funds arrive from your current custodian, you can initiate the Roth conversion by filling out this Conversion Instructions Form. If you need help filling out the form, you can watch the step-by-step instructions here.

How to Convert your old 401(k) to a Roth IRA

If you have a 401(k) from an old job that you haven’t yet rolled over

1. Create your Choice Account: Install Choice on iOS, Android, or sign-up on desktop here.
2. Open a Traditional IRA with Choice: After creating your Choice account, choose to open a Traditional IRA. You cannot convert an IRA with a different custodian to a Roth with Choice.
3. Rollover your 401(k) to Choice: Complete the Deposit Instructions form & contact your 401(k) plan administrator to initiate your rollover. Here are step-by-step instructions.
4. Open a Roth IRA: Log-in to your Choice account on your web browser, click on your profile in the upper right-hand corner, and select “Add an Account.”
5. Initiate the Conversion: Once the funds arrive from your old 401(k), you can initiate the Roth conversion by filling out this Conversion Instructions Form. If you need help filling out the form, you can watch the step-by-step instructions here.

Tax Implications

If you do convert your Traditional IRA into a Roth IRA, you will receive a 1099-R that details how much money you took in a distribution (converted) that you can send to your tax preparer or upload to your tax-filing software. You will have to pay income taxes on the money that you convert, so experts recommend that you set aside money to pay the additional taxes.

*Do your own research. We do not provide tax, legal, or investment advice. None of the prior or related text is offered as or meant to be considered financial advice. Kingdom Trust is an independent qualified custodian under the Investment Advisers Act of 1940, as amended, and 26 USC 408. Kingdom Trust is registered and regulated in the state of South Dakota and does not provide, promote, endorse or sell investment products and does not endorse or promote any individual investment advisor or investment sponsor. The information provided here is intended to be educational and informational in nature and should not be construed as anything else.*