IRA conversion

What is a Roth IRA conversion?

A conversion is an irrevocable, reportable movement of assets from an existing IRA to a Roth IRA. Eligible assets can be converted to a Roth IRA even if you are not eligible to make Roth IRA contributions due to your modified adjusted gross income (MAGI) or tax-filing status.

IRA assets that are eligible to be converted to a Roth IRA:

• Traditional IRA
• SEP IRA
• SARSEP
• SIMPLE IRA*

* SIMPLE IRAs may only be converted starting 2 years after the first SIMPLE IRA contribution.

IRA assets that are ineligible to be converted to a Roth IRA:

• Required minimum distributions (RMDs)
• Inherited IRA

For specific details regarding eligibility and tax consequences, consult a tax advisor.

How do you convert a traditional IRA to a Roth IRA?

To convert a Capital Bank and Trust Company (CB&T) traditional IRA to a CB&T Roth IRA, complete the Roth IRA Request for Conversion (PDF). If you do not have a CB&T Roth IRA, contact your financial professional for an account application. If you need helping finding a financial professional, contact us here.

What is the deadline for converting a traditional IRA to a Roth IRA?

For a conversion to be effective for a specific calendar year, the distribution from the traditional IRA must take place on or before December 31 of that calendar year.

What are the tax implications of an IRA conversion?

Converting another type of IRA to a Roth IRA is a tax-reportable event. Having multiple IRAs will affect the amount of the conversion that is considered taxable, even if only a portion of the assets are converting. The Internal Revenue Service (IRS) requires that the tax calculation accounts for the value of all your IRA assets (traditional, SEP/SARSEP and SIMPLE IRAs) owned on December 31 of the conversion year. Consult a tax advisor for guidance on your specific scenario.

Form 1099-R reports the distribution amount of the conversion and is generally sent at the end of January. Form 5498 reports the contribution amount of the conversion and is generally sent in late May. Visit the tax form schedule for more information on these tax forms.

Additional tax considerations:

• Any taxes withheld at the time of the conversion may also be subject to an early distribution penalty if you, or the primary investor, is under the age of 59½ and no early distribution exceptions apply
• Assets converted to a Roth IRA are subject to Roth IRA distribution rules