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business Personal FinanceIRA ABCs

Conversions | The Mechanics of a Conversion | Tax Consequences of a Conversion

Conversions

Conversions

If you have a traditional IRA but would prefer a Roth, you can do a conversion, as long as you meet the requirements and follow the rules.

Eligibility requirements:

  • Your modified adjusted gross income cannot be over $100,000 for the year you do the conversion. The level is the same whether you are married or single.
  • If you are married, generally you and your spouse must file a joint tax return the year the conversion is done.

Tips:

  • If you are close to the $100,000 income limit, you might want to wait to convert until you are certain that you will be below the limit. Remember, though, if you want to do a conversion for a given year the deadline is December 31 of that year.
  • If you do convert and then realize that your income was too high, the law allows you to "recharacterize" your IRA back to a traditional one without tax or penalty.
  • You may do a partial conversion of your traditional IRA into a Roth IRA if the tax hit for converting the entire amount would be too great.


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