mechanics of converting to Roth IRA

[Guest dr. z.]

I have a regular IRA with a online broker which I want to convert to a Roth IRA. I know I have to pay taxes on the value of my present IRA but I don't know when I have to pay them. I don't know at what point in time the value of my present portfolio of stocks is valued to determine the amount I owe. Information as to how the switch is made will be greatly appreciated. Also, are there considerations to be concerned about as to when the switch is made?

[John G]

Make sure you are very likely to meet the income requirements before you take action. The conversion is accomplished by sending your broker a letter of instructions and probably entails filling out some forms. Online brokers don't seem to like to answer the phone, so you may have to write to them requesting the conversion. The tax impact will be documented by an IRS form that the brokerage will generate based upon the date of conversion. Think of the date of conversion as if it was the date of a lump sum of income, you will either need to change your withholding or make some estimate payments to cover the taxes.

Timing? Don't wait to the end of the year because conversions are low priority and are often delayed a couple of weeks. A good time to convert is after the market has sagged and your assets have shrunk, but you remember that you are not in control of action date.

If your online brokerage gives you a problem you can always roll your account to someone more responsive.

[Guest dr. z.]

John G,

Thanks for the salient information. Your help is greatly appreciated.

dr. z.