IRA Conversions

1. What is a Roth IRA conversion? 

2. Why would I request a conversion? 

3. Tax considerations and reporting 

4. Request deadline 

5. Conversions at M1 

 

What is a Roth IRA conversion? 

A Roth IRA conversion, also known as a “backdoor conversion”, is when a Traditional IRA or pre-tax employer sponsored retirement plan, is converted to a Roth IRA.    

Once the conversion is complete, converted funds will be placed in your Roth IRA and your earnings and contributions will now grow on a tax-free basis.  

 

Why would I request a conversion? 

If the advantages of a Roth IRA outweigh the advantages of owning a pre-tax account, a conversion may be worth considering.  

If you aren’t eligible to contribute directly to a Roth IRA due to income limits, a conversion provides a way to add post-tax assets to your investment portfolio.  

Owning a Roth IRA in addition to pre-tax accounts may improve your tax diversification to an investment portfolio.  

 

Tax considerations and reporting 

To convert a pre-tax account to a Roth IRA, the account owner needs to add the taxable amount of the converted funds to their gross income while filing their taxes. 

However, there is no 10% early withdrawal penalty on converted funds. 

Following a conversion, you will receive a Form 1099-R that shows the withdrawal from your pre-tax account and a Form 5498 that shows the contribution to your Roth IRA.  

Converting pre-tax assets to a Roth IRA is irreversible and the converted funds can’t be recharacterized at a later date.  

 

Request deadline 

Roth IRA conversions must be completed by December 31.  

Please request your conversion prior to December 15. Due to the high volume of requests received toward the end of the calendar year, we can’t guarantee that conversions requested after December 15 will be completed prior to the IRS deadline.    

Conversions are reported on tax forms of the year that the conversion completes in. 

 

Conversions at M1 

If you’d like to request a conversion of your M1 Traditional or SEP IRA, the following information is required:  

  1. Traditional or SEP IRA account number you’d like to convert out of:
  2. Roth IRA account number you’d like to convert into: 
  3. Full or Partial conversion: 
    • If partial and converting cash, list the amount of cash you'd like to convert. Please ensure the cash is available in the account’s cash balance. 
    • If partial and converting securities, list the ticker symbol and share quantity for each security you'd like to convert. We cannot request using the value of the securities. 

Once our team receives this information, we will email you a form for your review. Once we receive the completed form back, we will send it to our clearing firm for processing. It can take up to three business days to process your conversion.  The Traditional IRA account will be paused for the duration of the conversion. 

Please be aware that processing time may increase during periods of high volume, including at the end of the calendar year and as the tax filing deadlines approach.   

  

M1 is unable to advise if an IRA conversion is right for you. Please consult a qualified financial professional with any questions you have about additional tax implications or filing your taxes. We recommend speaking with a qualified financial professional before requesting an IRA conversion.  

 

To request a conversion of your M1 Traditional or SEP IRA into an M1 Roth IRA, please contact us. 

 

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