Convert an account to a Roth IRA

5 questions to see if converting makes sense

For many individuals, converting to a Roth IRA may make sense. However, you should consult with a tax advisor and consider the following factors prior to making your decision:

• 1. Can you pay the taxes?
  This is the big question for most folks. The amount you choose to convert (you don’t have to convert the entire account) will be taxed as ordinary income in the year you convert. So you’ll need to have enough cash saved to pay the taxes on the amount you convert. Keep in mind: This additional income could also push you into a higher marginal federal income tax bracket.
  
  To find a comfortable amount to convert, try our Roth conversion calculator.
• 2. Is time on your side?
  The relative benefits of conversion will generally increase the longer your money remains in the Roth IRA. Specifically, if you need that money in less than 5 years, converting is generally not a good idea. If you’re age 50 or older, learn more in our Viewpoints article on Roth conversions specifically addressing your considerations.
  
  The key to remember with a Roth: Your money must stay in the Roth IRA for 5 years before your withdrawals of earnings can become tax-free and penalty-free in retirement. Withdrawals of your contributions can be made at any time, tax-free and penalty-free.
• 3. Will you earn the same or more in retirement?
  If you think your tax rate will be the same or higher in retirement, converting now could make sense. Why? Because Roth IRAs do not have required minimum distributions (RMDs) during the lifetime of the original owner. That means you could convert now and just keep giving the money a chance to grow, untaxed, without withdrawing. (Keep in mind: If you are required to take an RMD in the year you convert to a Roth IRA, you must do so before converting.)
• 4. Do any of these other scenarios apply to you?
  • You think the value of your IRA investments is hitting a low point.
  • You have other losses or deductions to offset the tax due on the conversion.
  • You are moving to a state with higher income taxes.

  If so, a conversion may also make sense for you.
• 5. What do you need to know before you convert?
  • Submission deadline at Fidelity: 4 p.m. ET on December 31 for a given tax year. If that’s on a weekend, the deadline is 4 p.m. ET on the last business day of the year.
  • No do-overs: Once your conversion’s complete, it can’t be reversed.
  • Tax bill: The amount you convert is taxable in the year you convert. So you need to plan for taxes.
  • Selling investments: Most traditional IRA investments can convert to a Roth IRA without being sold. Most 401(k)s convert in cash.
  • Value of the conversion: You’ll receive the closing market price on the day your conversion is processed.
  • Required minimum distribution (RMD): You must take any necessary RMD from your IRA or 401(k) before you convert.

FAQs

• If I convert to a Roth, can I reverse the conversion if the taxes are more than I expected?
  No, Roth conversions cannot be reversed. Tax planning is an important part of the conversion process. Before converting, try our Roth conversion calculator to compare the taxes you'll pay on different conversion amounts versus potential tax savings down the road.
• If I convert as part of a backdoor Roth strategy, is my conversion taxable?
  If you meet the specific requirements of a backdoor Roth strategy, the conversion is not taxable. Keep in mind, however, a backdoor Roth conversion is an advanced strategy. If you do not meet the specific requirements, you could be subject to unintended tax consequences. Before pursuing this strategy, Fidelity recommends you work with a tax advisor to ensure you're eligible. Learn more about the backdoor Roth strategy in this Viewpoints article about the backdoor Roth strategy.
• How can I convert my SIMPLE IRA assets?
  You may complete this form to convert your SIMPLE IRA assets. Once completed, you may submit the form as an attachment in a secure messageLog In Required.
  
  Please note, conversions from a SIMPLE IRA before age 59½¹ are generally subject to a 10% penalty. SIMPLE IRAs that have not yet met the 2-year aging requirement are not eligible for conversions.
  
  For time-sensitive requests please contact a retirement representative at 800-544-5373.
• Can I convert individual stocks or mutual funds from my IRA to a Roth?
  Yes, you are allowed to convert individual securities from your IRA to your Roth.
• If I convert shares of stock in my IRA to a Roth, how is the conversion value calculated?
  At Fidelity, Roth conversion values are priced using the closing market value of the shares on the day the conversion is processed.