Roth IRA Conversion- When it qualifies, but defies Tradition!
Posted by | Posted in Financial News | Posted on 03-11-2011
Apart from the Traditional IRA, there are other retirement plans that can be converted into a Roth IRA.The procedures vary a little in comparison to the conversion process, when the former retirement plan is involved. Refer to this page: roth-ira.org for details on how to convert a traditional IRA to a Roth IRA.
The retirement plans other than the traditional IRA that can be converted to a Roth IRA are termed qualifying retirement plans. The term qualifying retirement plan encompasses Employer’s pension, profit-sharing plan, stock-bonus plan, the 401(k), annuity plans (immaterial of whether they’re tax-sheltered) and the deferred compensation plan of the government.
The rules for amounts rolled-over from these plans are the same as that which applies; for when a traditional IRA is involved in the conversion. However there are certain changes to the other steps when it comes to converting a qualifying retirement plan to a Roth IRA.
Distributions from qualified retirement plans can be contributed to a Roth IRA through the concept termed rollover. The contribution is to be done within 60 days from the date of receiving the distribution from the retirement account. The distribution being direct, offers the payer the right to hold back 20% of it.
Yet another option is the direct-rollover. In this method, the distribution that you are eligible to receive through your retirement plan is not handed over to you. Instead the contribution to the Roth IRA is made directly to its trustee with the said distribution. When the conversion is such that the distribution is directed to the trustee with no withdrawal involved in the process, there is no tax that is levied on it. Rather, the payee does not get to retain any part of your distribution. Thus if and when a person converts his/her retirement account into a Roth IRA account, the direct-rollover method would be the best option.
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