- 1). Convert the assets, keeping a copy of all statements, forms and other conversion paperwork. Conversions add the converted amount to annual gross income when filing taxes in the following year.
- 2). Obtain the 1099-R and Form 5498 from the IRA custodian who converted the money. If the traditional IRA and Roth IRA are with different custodians, the forms will be sent by each one, respectively. The 1099-R states the taxable value released from the traditional IRA while the 5498 gives the amount confirmed in the Roth IRA.
- 3). Record the taxable amount listed on Form 1099-R on Line 15 of Form 1040 when filing taxes. The 2010 IRS regulations allow you to split the amount added to income for tax years 2010 and 2011. If you choose to split the taxes, divide the taxable amount by two and add that value to Line 15. Remember to do this in 2011 as well since you will not get a second 1099-R.
- 4). Pay the taxes with savings to maximize tax-free growth. You lose part of the conversion benefit when using IRA assets to pay for the conversion, according to Smart Money.
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