How to Convert to a Roth IRA After Age 59 1/2

When you convert a traditional IRA or 401(k) to a Roth individual retirement account, you generate a tax bill for the amounts arising from pretax contributions and earnings. That's because a Roth is funded with after-tax money. The conversion process is the same for all ages up to 70 1/2. However, after 59 1/2, you are no longer vulnerable to a 10 percent penalty that would apply in a couple of situations: missing the rollover deadline or not depositing the full rollover amount in the new account.

Roth Conversions

If the same trustee controls your old and new accounts, you can request a same-trustee transfer. Otherwise, you can arrange a trustee-to-trustee transfer or perform your own rollover. If you choose to do a rollover, you withdraw the conversion amount from your old account and contribute it to your Roth IRA within 60 days. If you miss the time limit, the Internal Revenue Service taxes the withdrawal as income, but since you've reached the magic age, you won't be hit with the 10 percent early withdrawal penalty. The rollover route is cash only; if you want to move mutual fund shares or other holdings from your old account into your Roth IRA, you must do a transfer instead. If your old account is a qualified employee retirement plan such as a 401(k), your employer will withhold 20 percent of the rollover amount for taxes. If you don't replenish this amount out of your own pocket when you contribute to the new account, the IRS will tax you on the shortfall.

Nondeductible Contributions

You can convert all or part of your old account to a Roth IRA. You don't pay taxes on the nondeductible, or after-tax, contributions included in the conversion. If you perform a partial conversion, you need to prorate the nondeductible contributions, using Worksheet 1-5 of IRS Publication 590, "Figuring the Taxable Part of Your IRA Distribution" and Form 8606. You enter the taxable amount on your tax return.

The Five-Year Rule

You can withdraw contributions from your Roth IRA without tax or penalty at any time. However, you must wait five years from the conversion date to remove any earnings resulting from the conversion tax-free. While you'll pay taxes on early withdrawals of earnings, you'll avoid the 10 percent penalty because of your age. You use a different five-year period for the earnings on regular contributions to your Roth. That period begins on Jan. 1 of the tax year for which you made the regular contribution. You have until April 15 of the following year to make an IRA contribution for the previous year.

Required Minimum Distributions

If you reached age 70 1/2 before converting to a Roth IRA, you cannot convert a required minimum distribution for the conversion year. Traditional IRAs and most qualified pensions require you to make yearly distributions after age 70 1/2 based on the life-expectancy tables in IRS Publication 590. A Roth IRA does not have required minimum distributions in the owner's lifetime, but there are distribution rules for beneficiaries.

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About the Author

Based in Chicago, Eric Bank has been writing business-related articles since 1985, and science articles since 2010. His articles have appeared in "PC Magazine" and on numerous websites. He holds a B.S. in biology and an M.B.A. from New York University. He also holds an M.S. in finance from DePaul University.

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