Roth Conversion

A Roth conversion refers to converting money from a traditional retirement account, such as a traditional IRA, 401(k) or 403(b) plan to a Roth IRA. You cannot convert a traditional IRA, 401(k) or 403(b) plan to a Roth 401(k) or Roth 403(b) plan. People choose to convert to a Roth IRA because of the tax-free withdrawals that it offers. However, you will have to pay taxes on the money that you are converting because the contributions to traditional accounts are tax deductible. Beginning in 2010, the Internal Revenue Service permits all individuals to convert money to a Roth IRA, regardless of income.

Read more: How to Convert to a Roth |


Reverse a Roth Conversion (Recharacterize)

Roth Individual Retirement Accounts (IRAs) offer the advantage of allowing you to take tax-free qualified withdrawals without required minimum distributions. When you convert from a traditional IRA, however, you must include the value of the converted assets as taxable income on your federal income tax. If the value of the assets falls, you may want to reverse the conversion to avoid paying taxes on the value of nonexistent assets, such as stock shares that have decreased in value. The process involves requesting the conversion reversal and reporting it on your taxes.

Read more: How to Reverse a Roth Conversion |