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.
M1 and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. It is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors to see if a conversion is right for you.
Tax considerations and reporting
The taxable amount of any converted funds must be added to your gross income when filing taxes for the year that the conversion was completed in.
You’ll receive the following tax forms following a conversion:
- Form 1099-R: Delivered in January, this will report the converted amount from your pre-tax account.
- Form 5498: Delivered in May, this will report the converted amount that was deposited into your Roth IRA.
Please note that tax documents will be delivered in the calendar year following the completion of a conversion since the converted amount is taxable in the calendar year in which the conversion was completed. For example, a conversion that is completed on January 3 will not receive a 1099-R until the following January.
Converting pre-tax assets to a Roth IRA is irreversible and the converted funds cannot be recharacterized to a pre-tax account at a later date.
Once your request is submitted to our clearing firm for processing, it can take up to three business days to complete. Your delivering account will be paused for the duration of the conversion process and trading will be resumed once the conversion has completed.
Due to the high volume of requests received toward the end of the calendar year, we expect a longer processing time for requests submitted after December 15. Please submit your conversion request promptly to allow for any end-of-year delays that may occur. As a reminder, any conversions that are not processed by December 31 will not be reported on tax documents for the current tax year.
Please note that new deposits into a pre-tax IRA accounts are subject to a six-business day holding period before being converted to a Roth IRA. This is in accordance with M1 and Apex Clearing’s policies. This means that anew IRA deposit cannot be converted until the six-business day holding period has surpassed.
Submitting a conversion request
M1’s IRA conversion form is attached at the bottom of this page and we’ve also attached two examples for reference. Please review the instructions below to complete the form. Once your form has been completed, you may submit your request here.
Please note that prior to submitting a request, the following is required:
- An open, funded M1Traditional or SEP IRA
- An open M1 Roth IRA
- If converting cash: cash must be available and settled in your account before it can be converted
- If converting securities: any recent trades must be settled before your holdings can be converted
Once your completed form has been received, you’ll receive an email from our team letting you know your request has been sent to our clearing firm for processing. Additionally, you’ll receive an email from our team if we have any questions about your request or if there are clarifications required.
For full conversions with securities, we may request a dividend sweep into the receiving account from our clearing firm on a quarterly basis. If you would like the dividends to be swept sooner, please reach out to our Client Success team and request the dividends be swept. A dividend sweep will not be requested for a partial conversion.
Lastly, 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.
Conversion request form instructions
Part 1 – Roth IRA Owner:
- Name (First/Last)
- Full Social Security Number
- Date of birth
- Account number: Roth IRA account number you are converting into
Part 2 - Accepting Roth IRA Trustee or Custodian:
- Skip this section.
Part 3 – Current IRA Information:
- Account number: Traditional or SEP IRA account number you are converting from
Part 4 - Withholding Election
- Please leave as is. Taxes will not be withheld during the conversion.
Part 5 – Direct Conversion Instructions:
- Direct conversion amount: Write “FULL”
- Check “Entire IRA balance” box
- Custodian of: Write First and Last name
- Asset Handling Instructions: Leave blank
- Direct conversion amount: Write “PARTIAL"
- Skip “Entire IRA balance” box
- Custodian of: Write First and Last name
- Asset Handling Instructions
- Asset description
- If converting cash, write “Cash”
- If converting securities, write the ticker symbol of each security on a separate line
- Note: If the amount of securities you are converting exceeds the form, please attach a separate
- PDF with the remaining securities and share quantity listed.
- Amount to be converted
- If converting cash: write the dollar amount to be converted
- If converting securities: write the share quantity to be converted – we cannot accept the current
- value of the securities, only the share quantity
- Special instructions
- If converting cash: leave blank
- If converting securities: write “Transfer in kind"
- Asset description
Part 6 – Signatures
- Sign your name (under “Signature of Recipient”) and date