IRA: Roth Conversions

Background: 


Traditional and SEP IRA owners may process a full conversion of cash or securities into a Roth IRA that has identical trading capabilities at Interactive Brokers.

An IRA Roth Conversion is a transfer of Traditional, SEP, or SIMPLE IRA assets into a Roth IRA as a rollover or conversion.

While Interactive Brokers is unable to re-designate a Traditional or SEP IRA as a Roth IRA (e.g. change the same Traditional IRA into a Roth IRA), you may still complete a Roth conversion without sending funds to another brokerage firm.  See below for methods to convert your IRA funds into a Roth IRA.  

Converting Your Funds

Internal Full Conversion Between IB Accounts

Conversion By Rollover Deposit

Conversion By Transfer

IRS Tax Reporting

Click Conversions and Recharacterizations for additional information.

 

Converting Your Funds

The IRS permits eligible IRA owners to contribute funds to a Roth IRA from a Traditional or SEP IRA.  Regardless of the conversion method used, the entire transaction is treated as a conversion.  There are three (3) conversion methods available for converting into an IB Roth IRA account:

(1) Internal Full Conversion (Cash & Securities)

(2) Rollover Deposit (Cash only)

(3) Trustee-to-Trustee Transfer (Cash only)

  1. Internal Full Conversion:  You may open a Roth IRA at IB and then request a Full (all assets) conversion of a Traditional or SEP IRA through Account Management.  All assets will be internally transferred  into the Roth IRA.  Internally processed Roth conversions submitted by 8:00 PM EST are processed the next business day.

[In Funds Management of the Traditional or SEP IRA, choose: IRA Conversion to Roth Account. Or, click  Position Transfers, then select IRA Conversion - Transfer Assets to Roth Account.]

Note: Select the funding option IRA Conversion or Re-characterization in the Funding section of the account application to perform a full conversion.  For step-by-step instructions, click here.  See Partial IRA Conversions to perform a partial conversion.

  1. Rollover Deposit:  You can receive a distribution from an IRA (Traditional, SEP, or SIMPLE) or qualified plan held outside of Interactive Brokers and roll the funds over (contribute it) to a Roth IRA within 60 days after the distribution.

[In Funds Management of the Roth IRA, choose the following deposit method: Cash Transfers.  In the Transaction List, select Deposit Cash.  In the Method List, select  Check, Wire, Automated Clearing House (A.C.H.), or Direct Rollover. Choose Rollover as the IRA Deposit Type.]

Note: Selecting Rollover designates the deposit as a "conversion contribution," provided funds originate from an IRA or qualified plan.  Select Cash Deposit instructions for step-by-step deposit instructions.

  1. Trustee-to-Trustee Transfer:  You can direct the trustee of an IRA (Traditional, SEP, or SIMPLE) or qualified plan held outside of Interactive Brokers to transfer a cash amount into the Roth IRA account at IB.  Use the IRA Transfer-In Authorization form to initiate your request.

[In Funds Management of the Roth IRA, choose the following deposit method: Cash Transfers.  In the Transaction List, select Deposit Cash.  In the Method List, select  Trustee-to-Trustee.]

Important Note: IB is not responsible for the tax reporting of any funds distributed from the Traditional or SEP  IRA held at another firm.  Customers should speak with a tax advisor before requesting an IRA distribution as withholding tax may apply.  Customers must contact the other firm to ensure that the IRA distribution is appropriately designated. 

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IRS Tax Reporting

The deposit of funds into the Roth IRA is treated by the IRS as a rollover contribution, regardless of the conversion method, and reported to the IRS on Form 5498.  Form 5498 is available by May 31 for the prior year's contributions.

The disbursement of funds from the Traditional or SEP IRA is treated by the IRS as a distribution and reported by IB on the Form 1099-R (report of the distribution).  This tax form is available by January 31 for the prior year's distributions.

For additional information on Forms 5498 and 1099-R, see US Year End Tax Forms.

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Disclaimer:  IB does not provide tax advice. These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any international, federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor. We recommend that you consult a qualified tax adviser.


Glossary terms: 

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