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Roth conversion is the transfer of a traditional IRA into a Roth IRA. Thanks to the recent changes initiated by the SECURE Act, individuals can now pass down their IRA to noun-spouse heirs after their death. It was a dream a few years back.

In the past, individuals could stretch out an inherited IRA over the beneficiary’s lifetime. This aspect enabled the individual to draw down on the balance while at the same time minimizing any tax hit. However, ever since the stretch became invalid, a non-spouse IRA beneficiary has ten years to drown down their balance, which results in more tax and larger RMD.

Roth conversion acts as a solution to this problem through shifting traditional IRA into Roth accounts. These Roth accounts have no (RMDs) required minimal deductions during the lifetime of the account owner. Additionally, they are also immune to federal taxation on any withdrawals carried out.

Rules for Roth Conversion

There are a few rules that an individual must understand before conducting a Roth conversion. These rules are;

  • A separate IRA Roth account is required for any conversion to occur.
  • Everyone must pay federal tax for the amount of IRA converted. However, conversion of a percentage of nondeductible contributions in the IRA might reduce the amount of payable tax.
  • Roth IRA is subjected to the 5-year rule. It means that individuals have to wait for five tax years from their initial contribution before distributing their earnings to avoid tax penalties. This five-year rule also applies to each conversion.
  • Conversion of traditional IRA must occur before death.

How to Approach Roth Conversion

There are three main approaches to Roth conversion. These are;

1. Direct Rollover


In this approach, the heir asks the custodian to move money from a traditional IRA into a Roth account held elsewhere. This approach dictated that the hair does not have to come into contact with the money. It also enables contributions to move placidly into the new Roth account.

2. Same-trustee Transfer

This approach is common among heirs looking to open Roth IRA by themselves. It directs the individual to make the conversion with the aid of the custodian they have already. They can also ask for assistance from rollover consultants.

3. Indirect Rollover

This approach directs individuals to take distributions from the traditional IRA and contribute it to the Roth IRA within 60 days. Individuals must document the entire process carefully to prevent the IRS from viewing it as an early withdrawal.