A Roth conversion moves money from a pre-tax or after-tax retirement account (typically a traditional IRA) into a Roth account. When moving from a pre-tax account, you pay taxes on the converted amount now in exchange for tax-free qualified withdrawals later.
A conversion is often used as part of a “backdoor” Roth, a popular move for high earners whose income exceeds the limits for Roth IRA contributions. Roth conversions have a few other use cases too, including a mega backdoor Roth by way of a standard or solo 401(k).
Your pre-conversion checklist
Betterment makes it easy to convert funds to either a Roth IRA or Roth solo 401(k) on a web browser (mobile app functionality isn’t currently available).
But the conversion itself comes near the end of the process. There's often prep work to do first.
In the case of IRAs, for example, you’ll want to make sure you’ve handled any pre- and/or post-tax funds correctly to account for the IRS’s pro rata rule, which determines how much of a conversion is taxable.
Roth conversions of all kinds are final and irreversible to boot, so we recommend speaking with an advisor and/or a tax professional before moving forward with one.
After this advance planning, keep a few more things in mind right before you convert:
- IRAs: First verify that your traditional IRA deposits have settled. This generally takes 1-3 business days, which you can confirm in the "Activity" section of your Betterment account.
- SEP IRAs: First send us an email to move your funds to a traditional IRA. We’ll take care of this preliminary step on our end with no paperwork required on your part.
- Solo 401(k)s: First make an after-tax contribution. We’ll notify you in the Betterment app and via email once that after-tax balance is ready for a Roth conversion.
Those with Required Minimum Distributions (RMDs) also must take their distributions for the year before making a conversion since RMDs cannot be converted.
Converting funds to a Roth at Betterment (web browser only)
- Open a web browser and log in to your Betterment account.
- Click on “Settings” in the left menu.
- Click the ”Accounts” tab at the top of the page.
- Locate your traditional IRA or solo 401(k) in the list of accounts.
- Select "Convert funds to Roth" and follow the steps from there.
After the conversion, you'll receive a Form 1099-R showing the amount converted. For IRA conversions, you report the conversion—and any nondeductible traditional IRA contributions—on Form 8606, which tracks your after-tax basis so it isn't taxed again when converted.