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Roth Conversion and Roth IRA General FAQs
Roth Conversion and Roth IRA General FAQs

This article discusses Roth conversions in general

Nancy Gates avatar
Written by Nancy Gates
Updated over a month ago

Roth Conversion FAQs

  1. Is there a limit to how much you can contribute to Roth each year?

    1. Roth contributions are limited to your earned income for the year. You cannot contribute directly to Roth if your income exceeds certain thresholds.

  2. Is there a limit to how much you can convert to Roth each year?

    1. There is no limit to how much you can convert to Roth each year.

  3. Can you make a Roth contribution and conversion in the same year?

    1. Yes you may make a Roth contribution and conversion in the same year.

  4. Why is the rule of thumb to pay conversion taxes from an after-tax account? Why is it recommended to use non-IRA funds to pay taxes on a Roth Conversion?

    1. Paying taxes from the IRA/conversion reduces the assets moving to the Roth and growing tax free. Paying taxes from after tax funds may serve to maximize the impact of the conversion.

    2. Paying taxes from the IRA/conversion prior to age 59.5 may subject you to tax on withdrawal of investment earnings.

  5. Do I have to convert by December 31 or do I have until April 15 of the subsequent year?

    1. You must convert by December 31 of the current year to include the conversion in your gross taxable income for the current tax filing year.

  6. Can I convert prior to age 59.5?

    1. You may convert prior to age 59.5.

Paying taxes for Roth Conversions

  1. There is NO required withholding on Roth conversions.

  2. The IRS expects taxes to be paid in a timely manner. Taxes on Roth conversions may be paid via the following methods:

    1. Withholding from the conversion by the financial institution.

    2. Quarterly estimated tax payments. Align your estimated tax payment with the quarter in which you made the conversion.

      1. January - April 15

      2. April 15 - June 15

      3. June 15 - September 15

      4. September 15 - January 15

    3. Withholding from work, pensions, or other income sources. Taxes paid by this method will be assumed to have been paid evenly in the 4 quarters.

    4. You may request an IRA distribution in December and have the custodian send it all to the IRS as withholding. Taxes paid by this method will be assumed to have been paid evenly in the 4 quarters.

Roth IRA Distribution Rules

Roth IRA contributions may be withdrawn at any age without tax or penalty.

Distribution of Roth IRA funds must be qualified to avoid to taxes and penalties on the investment earnings unless you qualify for one of the exceptions that allow you to access your Roth IRA earnings early without taxes and/or penalties.

The two rules you must satisfy to take a qualified distribution from a Roth IRA are:

  1. It must be at least five years since the start of the tax year of your first contribution.

    1. Distribution of Roth IRA investment earnings will be subject to income tax if your first/oldest Roth IRA has not been open at least 5 years.

  2. You must be at least 59 ½

    1. Distribution of Roth IRA investment earnings will be subject to a 10% Early Distribution Penalty if you are not at least age 59 1⁄2.

There is a separate rule for qualified distributions of Roth conversions, which stipulates a 5 year period for each conversion. The five-year period for Roth Conversions begins Jan. 1 of the year you made each conversion. Once you clear that five-year period, withdrawal of earnings is tax-free. This rule ends at age 59.5.

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