Roth IRA Conversion

Roth IRA conversions are now available to everyone

Beginning this year, all investors, regardless of income, are eligible to convert their tax-deferred retirement savings to tax-free Roth IRAs. Roth IRAs differ from Traditional IRAs in how contributions and withdrawals are taxed.

Contributions to a Roth IRA are not tax deductible, but all withdrawals are tax free, provided certain provisions are met. You may benefit from a Roth conversion if you expect to be in a higher tax bracket in retirement, already own taxable and tax-deferred savings accounts, or want to leave a financial legacy to future generations.

Discover all the advantages of a Roth IRA. Call Putnam's IRA Hotline at 1-888-661-ROTH (7684) or contact your financial advisor.

All tax-deferred IRAs, including Traditional, Rollover, SIMPLE*, SEP, and SAR-SEP IRAs, are eligible for a Roth IRA conversion. Most employer-sponsored retirement plans, such as 401(k)s and 403(b)s, are also eligible, as long as there is an accompanying "triggering event," such as a job change, retirement, or the account holder reaches age 59½.

Income restrictions still apply for those wishing to make Roth IRA contributions.

* SIMPLE IRAs may not be converted until two years from the date the account owner first began participating in the plan.

This should not be considered tax advice.

Additional resources
Traditional IRA Roth IRA
Withdrawals in retirement Taxed as income Tax free
Tax implications Withdrawals are treated as income. They may increase your overall tax liability. Withdrawals are not treated as income. They will not affect your tax rate.
Required withdrawals Mandatory at age 70½ None, at any age. Your money can continue growing tax free, allowing you to maximize the tax-free financial legacy that you pass on to your heirs.
  • Pay today's tax rates: When you convert your Traditional IRA, you will owe income taxes on the account's growth as well as on the portion of your contributions you may have deducted from your income taxes over the years. But by paying these taxes once and upfront, you will avoid any potential future tax increases on your withdrawals.
  • Defer tax payments: You may be able to lower the size of your taxable estate when you convert to a Roth IRA.
  • Benefit from losses: A one-time provision allows investors to convert to a Roth IRA in 2010 and spread the tax liability over their 2011 and 2012 tax returns.
  • Lower estate taxes: You could leave a more tax-favorable legacy to your heirs when you convert assets to a Roth IRA.

This should not be considered tax advice.

Additional resources
  • Partial conversions: You may want to convert a portion of a Traditional IRA to a Roth IRA under certain circumstances. To find out if this is for you, contact your financial or tax advisor.
  • Tax liability: You'll have taxes to pay when you convert to a Roth IRA. Will you have the money to pay these taxes?
  • Future tax rate: If you'll be in a higher tax bracket when you retire, or if you think taxes will rise by then, converting to a Roth IRA now may be good way for you to pay today's lower rate.
  • Were non-deductible contributions made?: If you were not able to deduct your Traditional IRA contributions due to income restrictions, only the subsequent IRA earnings would be taxable when you convert to a Roth IRA. Consult a tax professional to help figure the taxes due upon conversion.
  • Changed your mind?: You can undo, or "recharacterize," a Roth IRA conversion without taxes or penalty if you complete the process before the tax-filing deadline.

This should not be considered tax advice.

Additional resources
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