Last Updated Jan 6, 2010 10:19 AM EST
There are three ways to convert traditional IRAs to Roth IRAs:
- Indirect Roth conversions occur when traditional IRA holders request and constructively receive distributions from their IRA and deposit the amount in a Roth IRA within 60 days. In this situation, the check is made payable to the traditional IRA holder.
- Direct Roth conversions occur when traditional IRA holders directly move their IRA assets to the receiving Roth IRAs without taking constructive receipt of the assets. In this scenario, checks are made payable to the receiving financial institutions for the benefit of the Roth IRA and forwarded as soon as administratively feasible to the receiving financial institutions.
- Investors can convert their traditional IRAs to Roth IRAs by simply redesignating the traditional IRAs as Roth IRAs, provided the transaction is completed with the same trustee, custodian or issuer. Redesignating traditional IRAs as Roth IRAs, though physically accomplished via a transfer, is treated as a distribution and subsequent qualified rollover contribution.
Tomorrow, we'll look at some important considerations to keep in mind regarding Roth IRA conversions.
Follow the series: Roth IRA Conversions