Roth IRA Contributions and Conversions

By: Jeff Dixon, MBA – Sr. Business Development Manager, uDirect IRA Services

A Roth IRA is a retirement account that accepts after-tax funds. That means you pay taxes on the contributions. The profits then grow tax-exempt.

For the 2019 tax year the max Roth Contribution has increased to $6,000 per year if you are under 50 and $7,000 if you are 50+. 

The IRS says you can contribute to a Roth IRA if your income falls below the Roth limits. You’re allowed a prorated contribution if your income falls within the “phase-out” range. If your income exceeds the income range, you won’t qualify for a Roth IRA contribution. Be sure to discuss your Roth contribution with your tax advisor. You can also learn more about these limits HERE.

One question we get often is whether someone can change their Traditional IRA account into a Roth IRA. The answer is yes. What one does is open a Roth account and then complete a Conversion form. The process generally takes a day or so.  The account holder will receive a 1099, which they then file with their next year’s personal income tax report. If they are moving over the Traditional funds to us and do not already have a Traditional IRA with us, they would also need to open a Traditional IRA to accept the funds before the conversion occurs.   

Always discuss a Roth conversion with your tax advisor in advance.  The opportunity to do a “Roth Recharacterization” (un-doing a Roth conversion) is a thing of the past and is no longer allowed by the IRS.

If you are making too much money to do a direct Roth Contribution could possibly do a Traditional Contribution and then turn around and do a Conversion of that Contribution. It is often referred to as a “Back-Door Roth”. While there are income limits on Contributions there are not income limits on conversions. You can also convert a SEP IRA and a SIMPLE IRA to a Roth. Again, you should always discuss your plans with your tax advisor.

Roth Conversions are also allowed in the Solo 401k plan. Those funds do stay in the 401k account.

If you have further questions about Roth IRAs please call uDirect IRA Services at (866) 447-6598.

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