Roth IRA Accounts

As of 2010, the $100,000 income ceiling to convert to a Roth IRA from a Traditional IRA was eliminated. Plus, conversions are now available to those who are married but file their taxes separately.

When you convert, your distribution becomes taxable. If you funded your IRA with nondeductible contributions, then you will owe taxes on the earnings only. If you have deductible contributions, then you'll owe taxes on the full amount (contributions plus earnings) you want to convert. Before deciding whether to convert to a Roth IRA, consider your current tax bracket, whether you have the money available to pay the taxes out of pocket on the conversion, and what your estimated tax bracket in retirement will be. In addition, consider the length of time before you need to start withdrawing the money from your IRA for expenses.

A key difference between Traditional and Roth IRAs is that qualified distributions of Roth IRA "earnings" are tax-free. If you believe that you're in a lower tax bracket now than when you retire, you could potentially save more in future tax payments.

Roth IRAs have no Required Minimum Distribution (RMD) requirements, giving you a twofold benefit. First, they allow you to reduce a potential tax burden associated with claiming the extra income from RMDs at age 70 1/2, and secondly, they allow you to build a legacy of wealth that you can pass on to your beneficiaries, potentially tax-free.

Possibilities exist depending on your personal situation. Conversions are not right for everyone and many factors should be considered before taking action. For help in deciding if conversion might be right for you, use one of our three calculators (Basic Conversion, Breakeven Analysis, or Legacy Planning). Ready to get started? Go to our IRA Service Center to access self-populating, printable forms, just click on Open an IRA or Manage My Account. Still uncertain or if you need additional information, please call us and ask to speak to an IRA Services Specialist.

Note: The information provided is not intended to replace or serve as tax, planning, or legal advice. We recommend that you seek competent advice from a qualified tax adviser, CPA, or financial planner.

Congratulations on your decision to convert to a Roth IRA at Star One!

Below are the steps to convert your Traditional, Rollover, SEP or SIMPLE IRA to a Roth IRA. We've also included instructions on how to convert an employer-sponsored retirement plan to a Roth IRA.

If you need assistance in completing the paperwork or have questions concerning this process, call us and ask to speak to an IRA Services Specialist.

By clicking the link below, you will be directed to Star One's IRA Service Center. Complete the conversion documents. Follow the directions located on each page. At the end, review the forms, make any necessary changes if needed, and then print, sign and date the forms. Mail the forms to Star One Credit Union, P.O. Box 3643, Sunnyvale, CA 94088-3643 Attn: IRA Department, or take them to a Star One Branch for processing.

What you need...

...to convert a Star One Traditional IRA to a Roth IRA:

• Your Star One membership number
• Your beneficiary information (SSN, birth date & contact information).
• Click on the highlighted link to complete the "Roth IRA Conversion" documents in the IRA Service Center. Be sure to click on the "Convert assets from a Traditional IRA" radio button to begin. Follow the prompts and answer all questions completely.
• Upon completion, print the documents, review and if correct, sign and mail them to Star One or take them to a Star One Branch for processing.

...to convert a non-Star One IRA to a Roth IRA:

• Your Star One membership number
• A recent statement from your current Traditional, Rollover, SEP or SIMPLE IRA.
• Your beneficiary information (SSN, birth date & contact information).
• Click on the highlighted link to complete the "Roth IRA Conversion" documents in the IRA Service Center. Be sure to click on the "Convert assets from a Traditional IRA" radio button to begin. Follow the prompts and answer all questions completely.
• Upon completion, print the documents, review and if correct, sign and mail them to Star One or take them to a Star One Branch for processing.

...to convert Employer Sponsored Retirement Plan(s) to a Roth IRA:

• Your Star One membership number
• A recent benefit statement from your former employer's retirement plan.
• Your past employer's name and address (needed for employer plan conversions only).
• Your beneficiary information (SSN, birth date & contact information).
• Contact your former employer's plan administrator to learn what their requirements are to successfully transfer funds into a Roth Conversion IRA at Star One.
• Have a copy of your most recent employee benefit statement for reference.
• Click on the highlighted link to complete the "Roth IRA Conversion" documents in the IRA Service Center. Follow the prompts and answer all questions completely.
• Upon completion, print the documents, review and if correct, sign and mail them to Star One or take them to a Star One Branch for processing.

If you own multiple IRAs and frequently move assets between those IRAs, be aware that the IRS has changed the rules that limit the number of rollovers you can complete within one year.

Old Interpretation - 2014 and Earlier

In 2014 and previous years, proposed Treasury regulation (1.408-4(b)(4)(ii)) and IRS Publication 590, Individual Retirement Arrangements (IRAs), had stated that you were eligible to roll over one distribution per IRA that you owned during any 12-month period. Also, the IRA assets that were rolled over could not be rolled over more than once during the 12-month period. The IRS has now changed this interpretation.

New Interpretation - 2015 and Later

Beginning January 1, 2015, you are limited to only one IRA rollover per 12-month period, regardless of the number of IRAs you own. The 12-month period begins the day you receive the IRA distribution. Keep in mind that this 12-month rollover rule applies only to IRA-to-IRA rollovers and does not apply to your employer-sponsored retirement plan rollovers or to rollovers between employer-sponsored retirement plans and IRAs. In addition, this rule does not apply to IRA transfers (the direct movement of IRA assets to another IRA). This means that you still can complete an unlimited number of IRA transfers during any period because you do not have access to the assets.

Roth and Traditional IRAs will be aggregated for purposes of this one-per-taxpayer limitation. "Traditional" IRAs include simplified employee pension (SEP) plan accounts and savings incentive match plan for employees of small employers (SIMPLE) IRAs. If you receive a distribution and subsequently roll over the amount from either type of IRA, you will be disqualified from completing a subsequent rollover for 12 months. For example, if you take a distribution from your Roth IRA on January 15, 2015, and roll over the amount to another Roth IRA within 60 days, you cannot roll over another distribution from any Roth, SIMPLE, or Traditional IRA that you may own until January 15, 2016.

The new rollover limitation does not include Roth IRA conversions. For example, if you take a distribution from your Traditional IRA in 2015 and deposit the amount into a Roth IRA within 60 days, that is considered a conversion and the 12-month rollover rule does not apply.

60-Day Rule Still Applies

The 60-day rule for IRA-to-IRA rollovers will remain unchanged. You still will have 60 days from the date you receive IRA assets to roll them over to either the same IRA or another IRA. Be sure to complete your rollover before the 60th day if the 60th day falls on a Saturday, Sunday, or legal holiday, as there is no extension to complete a rollover.

Further Guidance

If you receive an IRA distribution in 2014 but roll over the amount in 2015 within the 60-day time frame, the rollover will not affect your eligibility to roll over another distribution in 2015 as long as the 2015 distribution is from a different IRA. For example, if you take a distribution from your Traditional IRA on December 15, 2014, and roll over the amount into the same IRA on January 15, 2015, you still can take a distribution in 2015 from a different IRA and roll over the amount within 60 days.

The IRS intends to update Publication 590 to reflect the new position that the IRA rollover limitation applies on an aggregated basis (per IRA owner). As of this writing, the updated publication has not yet been released. For more information regarding the new rollover rule, you may want to review IRS Announcements 2014-15 and 2014-32.

Changing Jobs or Retiring
Preserve the tax-favored status of your employer retirement plan savings by rolling over the money to an IRA. The best way to roll retirement plan dollars to an IRA is via a "direct rollover." By rolling over your retirement savings from an employer-sponsored plan directly to an IRA, you will avoid the mandatory 20% income tax withholding as well as any early distribution penalty tax. Contact your employer plan administrator or IRA Services at Star One for instructions on how to move your retirement funds.

Rollovers From an Employer Plan
An individual may roll over funds from an employer-sponsored retirement plan to an IRA. An eligible employer-sponsored retirement plan is an IRC Sec. 401 (a) or 403(a) qualified retirement plan (QRP), a tax-sheltered annuity (403(b) plan), or a governmental 457(b) plan. Individuals may either directly or indirectly roll over assets from an employer retirement plan to an IRA.

• Direct Rollover
  A direct rollover is a rollover distribution that is paid directly to another employer retirement plan or IRA for the benefit of the individual taking the distribution. The mandatory 20% withholding that generally applies to retirement plan rollover distributions does not apply if the distribution is directly rolled over from the retirement plan to the IRA.

• Indirect Rollover
  An indirect rollover occurs when the individual receives a distribution (e.g., a check is payable to the employee) from an employer retirement plan and, within 60 days, rolls the distribution into an IRA or another qualified employer retirement plan. The employer is required to withhold 20% of the distribution as a prepayment of income tax.

  An individual may roll over 100% of the rollover distribution amount, including the 20% that the administrator of the plan withheld. With that option, an individual will have to make up the 20% tax withholding out of their pocket. An individual may choose to roll over only the 80% actually received; however, the withheld 20% of the distribution should be included in their taxable income for the year. If they are under age 59½, they may incur a 10% early distribution penalty on the 20% withholding as well.

• Beneficiary Rollover
  Non-spouse beneficiaries may directly rollover inherited employer-sponsored retirement plan assets to inherited IRAs. (Consult a tax advisor with questions regarding these types of transactions.) A spouse beneficiary has the added benefit by of treating the inherited IRA funds as their own, and can transfer or rollover the funds to their own IRA plan.

Rollover to a Traditional IRA
Any pre-tax retirement savings that is rolled over to a Traditional IRA is not subject to income taxes, nor does it trigger tax penalties for an early withdrawal. Assets remain in a tax-deferred plan with a Traditional IRA.

Rollover to a Roth IRA
There is an option to rollover employer-sponsored retirement plan assets to a Roth IRA instead of a Traditional IRA. With this transaction, an individual is converting pre-tax retirement savings into after-tax savings. This transaction is not a tax-free transaction; the taxable amount of your plan rollover is included in income for the year. However, once the money is in a Roth IRA, it is never taxed again. And if an individual takes a qualified distribution from the Roth IRA, any earnings that have accrued can be taken out tax-free. If an individual has stopped working and has earned less income for the year, they might be in a lower tax bracket and rolling over pre-tax retirement plan assets to a Roth IRA may be a good move in such a year.

Be sure to seek financial or tax advice before you rollover assets into another plan to ensure you have considered your best options.

...to rollover Employer Sponsored Retirement Plan(s) to a Traditional IRA or to a Roth IRA:

• Your Star One membership number
• Your past employer's name and address (needed for employer plan conversions only).
• Your beneficiary information (SSN, birth date & contact information).
• Your former employer's plan instructions to rollover funds.
• A copy of your most recent employee benefits statement for reference.

• Click on the highlighted link to complete the "Traditional IRA" or "Roth IRA" documents in the IRA Service Center. Be sure to click on the "Move assets from an employer-sponsored retirement plan" radio button to begin. Follow the prompts and answer all questions completely.
• Upon completion, print the documents, review, sign and mail them to Star One Credit Union, PO Box 3643, Sunnyvale, CA, 94088-3643 ATTN: IRA Services, or take them to a Star One Branch for processing.