IRAs are Individual Retirement Accounts. These accounts defer income tax as long as the money remains inside of the account. With traditional IRAs, you must pay tax on all of your withdrawals at ordinary income tax rates. There is only one way to get around paying tax on future withdrawals from an IRA and that is to convert the IRA to a Roth IRA. However, even though future withdrawals will be tax-free, the conversion does leave you with an immediate tax liability.
Gather your IRA account statements. The most recent statement reflects your current IRA account balance. If you have any Roth IRAs, you won't need to worry about converting these accounts.
Set up a new Roth IRA. Fill out an application for a new Roth IRA with your existing (or a new) broker or life insurance company. You must supply the financial institution with your personal information like your name, address, Social Security number as well as your place of employment. Once you turn in your Roth IRA application, you'll receive an account number.
Get a transfer request form from your life insurance company or brokerage firm. Fill out the form. The transfer request form directs your broker to transfer money from your existing IRA to a new IRA. You must specify the amount of money you want to transfer as well as the account number for both your existing IRA and your new Roth IRA. The Roth IRA is not taxed when making withdrawals. Instead, you receive all withdrawals on an income tax-free basis. But, you must pay income tax on any conversion amount going into the Roth IRA. This is because the Roth only accepts after-tax contributions.
Turn in the transfer request form. Your money should be transferred within several weeks. If you haven't received confirmation on the transfer after four weeks, you should contact your broker and verify that all paperwork was processed properly.