Conversions
Instructions
IRA Conversion
An IRA conversion is a transfer of Traditional, Traditional Rollover or SEP IRA assets to a Roth IRA with the same custodian or as a trustee-to-trustee transfer or rollover. A conversion is subject to Form 1099-R reporting for the distribution from the non-Roth and Form 5498 for the contribution to the Roth IRA.
Eligibility Requirements
You are eligible to convert to a Roth IRA if your modified adjusted gross income (MAGI) does not exceed $100,000 (not including the IRA conversion amount) in the year you convert. This rule applies to both single and joint tax filers. Married individuals filing separate tax returns are not eligible to convert to a Roth IRA unless they have lived apart from their spouse for the entire tax year.
2010 Changes
If you convert in 2010, neither the MAGI limit nor the requirement that married filing separately spouses live apart for the year will apply. Generally, when you convert to a Roth IRA, you are required to pay taxes on any taxable converted amount including deductible contributions and any investment earnings. If you convert in 2010, the income taxes may be spread over 2011 and 2012, with 50% of the taxes due being paid in each of those years. Furthermore, if you convert your Traditional IRA to a Roth IRA, the taxable portion of your Traditional IRA will not be subject to a 10% penalty tax regardless of your age at the time of the conversion unless the full amount of the distribution is not converted (for example, if you elect to withhold taxes and the amount withheld is not replaced.)
Additional Information
- If you are age 70½ or older and you have not taken a Required Minimum Distribution (RMD) from your IRA, you must do so prior to converting to a Roth IRA.
- For IRA Conversions from a traditional IRA (or IRA rollover) account, you first must open an IBKR Roth IRA if you do not already have one.
- Your existing traditional IRA account will be closed upon completion of a full conversion transfer.
- Please note that transfers of securities positions from a Traditional IRA to a Roth IRA will only be accepted between accounts with matching names and taxpayer identification numbers.
Consult your tax advisor before you decide to convert to a Roth IRA.
Additional Resources
Learn About the Client Portal Interface at IBKR Campus