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Converting to a Roth IRA

Converting to a Roth IRA Menu

What is a Roth conversion?

A Roth conversion occurs when you move assets from a traditional IRA to a Roth IRA. Changes to tax laws now allow for investors of all income levels to implement a conversion.

Why convert to a Roth IRA?

Converting a traditional IRA to a Roth IRA can be appealing for some investors because:

  • Investors in a Roth IRA are not required to begin taking required minimum distributions (RMDs) at age 70½ like they are with a traditional IRA. This can help retirees gain more control over their investment withdrawals.
  • Roth IRA withdrawals are tax-free, which can provide tax diversification in retirement.
  • Roth IRAs can be passed on tax-free to heirs, making it an appealing estate-planning tool.

A Roth IRA conversion may make sense if:

  • You won’t need the converted Roth funds for at least five years. There is a five-year waiting period if you are under age 59½ before you can distribute the converted amount penalty-free.
  • You estimate being in a similar or higher tax bracket in retirement.
  • Your assets have not grown significantly and the tax on their growth would be minimal.
  • You can pay the conversion taxes without using the retirement funds themselves.
  • You do not expect to use the funds for retirement and wish to transfer them to your heirs.

What type of retirement accounts can I convert to a Roth?

In addition to traditional IRAs, accounts in qualified employer plans such as 401(k)s, 403(b)s, or governmental 457(b)s that are eligible to be rolled over may be converted a Roth IRAs.

When am I eligible for tax-free withdrawals?

To withdraw tax-free earnings, the Roth IRA must have been open for a minimum of five years and meet one of these criteria:

  • Age 59½ or older
  • First-time home purchase ($10,000 lifetime limit)
  • Disability
  • Death

Will I owe taxes on my conversion?

Yes, any previously tax-deferred assets converted (such as a traditional IRA or a traditional employer plan) will be taxable as income. A conversion of after-tax amounts (such as a nondeductible contribution to a traditional IRA) will not be subject to income tax. 

Do I need to convert all my assets at one time?

No. To help manage your tax liability, you may choose to convert just a portion of your assets. There is no limit to the number of conversions you can do, so you may convert smaller amounts over several years.

 

If you are an existing Wells Fargo Funds client and wish to complete a conversion, please complete and mail in the following forms:

  1. An IRA Application to open a new Roth IRA account (unless you already have a Roth account established)
  2. Roth IRA Conversion form

Do you have questions about a Roth conversion? Call us at 1-800-359-3379.

Any tax or legal information on this website is merely a summary of our understanding and interpretations of some of the current income tax regulations and is not exhaustive. Investors should consult their tax advisor or legal counsel for advice and information concerning their particular situation. Wells Fargo Funds Management, LLC; Wells Fargo Funds Distributor, LLC; or any of their representatives may not give legal or tax advice.

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