Process

• A treasury bond is a 30-year debt obligation that you are paid interest on when you lend money to the federal government. You receive a guaranteed interest payment on this bond every six months. You must liquidate this bond to transfer the money into a Roth IRA as they only accept cash contributions.
  
  

Significance

• Your treasury bond must be converted to cash, so you will lose any interest between the time you convert it to cash and the time you repurchase the bond inside of the Roth IRA. Once inside the Roth account, your bond will continue paying interest, although this will technically be a new bond issue, meaning you will restart the maturity date of the bond. You must obey all contribution rules of the Roth IRA when converting your treasuries to cash and contributing the bond funds into your retirement account.
  
  

Benefit

• All of your income from the bond is tax-free. Outside of the Roth, your bond is subject to federal income tax even though state and local taxes are not assessed on treasury bonds. This additional tax exemption gives you more income than you otherwise would have. Additionally, you won't have to worry about rising future tax rates as Roth IRAs are exempt from future income tax.
  
  

Consideration

• You will lose the guaranteed interest rate during the conversion. You must accept the new interest rate of new bond issues. If these rates are lower than your current rate, then you stand to lose out on the deal, since you'll be paid less interest on your investment. Additionally, treasuries are exempt from state and local taxes, so the tax bite may not be as large as you are expecting by holding the bond outside of the Roth account. Moving your bond money into a Roth only makes sense when you are getting at least as much interest on your money as you are outside the Roth and when your net return after taxes would be improved by using the Roth account.