How to Transfer to a Roth IRA

How to Transfer to a Roth IRA

Roth IRA is an investment plan for individuals to invest their money after retirement in most safe and secure way to get the maximum benefit for their golden period. It is great alternative of the traditional IRA. In simple words, you can say that it is the simplest form of a retirement account in which an individual can invest his or her money as it offer tax-free growth of your income. Therefore, you get the maximum return on the capital invested.

Roth IRA is also taxed ones, but you have to pay double amount of tax if you have other type of IRA account. If you have Roth IRA account, you can withdraw your money without paying any type of tax compared to traditional IRA, which is taxed on every withdrawal.

IRS also known as internal revenue service allows individual to transfer their capital from traditional IRA accounts into a Roth IRA. This is very beneficial for investors as it allows them to consolidate their retirement accounts. This will help them to take maximum benefit from the amount invested and can make tax-free withdrawals.

One other great advantage is that if you have two or more Roth IRA accounts, you can transfer funds from one account to other Roth IRA account without paying any kind of tax. However, if you are transferring funds from tradition IRA account to Roth IRA, and then you have to pay tax. Below are some tips that will help you to transfer to Roth IRA.

The very first thing you have to do is to contact the financial institution, take their help and ask them about the documents required to transfer form traditional IRA to Roth IRA. Provide them your details such as your social security number, your current retirement account number and the account number of your Roth IRA account. In addition, if you are transferring funds to a Roth IRA at a different organization, that organizations name.

Once you filled the form, provide all your details, and return it to them. Now wait for sometime, as your money will be automatically transferred from your traditional account to your new Roth IRA account. However, if you are moving funds from one Roth IRA account to other Roth IRA account, then there is no need to report the financial institution and this transfer will be tax-free.

Normally your financial institution will give you 1099-R form to calculate the tax liability on how much of the transfer is chargeable. There is a special box on the form called “2a”, in which the taxable amount is listed. It is normally equal to the total amount of the transfer, except you have made non-taxable payments.

Use other form that is normally 1040A to details the chargeable part of the transfer as payable earnings on your tax return. You have to pay tax on this money as you are making transfer from a traditional account to Roth IRA account. However, you are free to make tax fee withdrawals with your new Roth IRA account.