You pay income tax on the money you convert, in the year you convert it

When you move money from a traditional IRA or 401(k) into a Roth account, the IRS treats that transfer as income. You owe federal income tax on the full amount you convert in that tax year — not spread over time, not deferred. The tax is calculated at your ordinary income tax rate, which depends on your total income that year and your tax bracket.

This is the core cost of a Roth conversion. You pay the tax bill upfront, usually by April 15 of the following year when you file your return. Some people pay estimated taxes during the year to avoid a large bill later. The money you convert is no longer in a tax-deferred account, so you have already paid the price to move it.

Key Takeaways

  • The full amount you convert counts as ordinary income in the year of conversion, taxed at your marginal tax rate.
  • You owe the tax bill by April 15 of the following year, though paying estimated taxes during the year can spread the burden.
  • The tax is calculated on the converted amount plus any other income you earned that year, which can push you into a higher bracket.
  • If you have a traditional IRA with pre-tax contributions, the IRS uses a pro-rata rule that taxes a portion of every conversion based on your total IRA balance.
  • State income tax may also apply to the conversion, depending on where you live.

How the IRS calculates your tax on the conversion

The IRS adds the conversion amount to your other income for the year. If you earn $60,000 in salary and convert $30,000, your taxable income is $90,000. You then pay tax on that $90,000 at the rates that apply to your bracket. If you are in the 22% federal bracket, you owe roughly $6,600 in federal tax on the conversion (though the exact amount depends on your full tax picture and deductions).

The conversion can push you into a higher tax bracket. If you are near the top of the 12% bracket and convert a large amount, part of that conversion may be taxed at 22% or higher. This is why many people convert smaller amounts in lower-income years, or spread conversions across multiple years to stay in a lower bracket.

You report the conversion on Form 8606 when you file your tax return. This form tells the IRS how much you converted and helps calculate your tax liability. You do not need to file it during the conversion itself — only when you file your return for that tax year.

The pro-rata rule: how it affects conversions from traditional IRAs

If you have both pre-tax and after-tax money in traditional IRAs, the IRS does not let you convert only the after-tax portion. Instead, it uses the pro-rata rule: you must treat every conversion as if it comes from a proportional mix of pre-tax and after-tax money across all your traditional IRAs.

Example: You have $100,000 in a traditional IRA ($80,000 pre-tax, $20,000 after-tax) and you convert $50,000. The IRS treats the conversion as 80% pre-tax ($40,000) and 20% after-tax ($10,000). You owe tax only on the $40,000 pre-tax portion. The $10,000 after-tax portion is not taxed again.

This rule applies to all your traditional IRAs combined — not each account separately. If you have IRAs at multiple banks or brokers, the IRS counts them all together for the pro-rata calculation. This can make conversions more expensive if you have significant pre-tax balances, because you cannot isolate the after-tax money to convert tax-free.

State income tax on conversions

Most states that have an income tax will also tax your Roth conversion as ordinary income in the year you convert. The state tax rate varies by state and by your income level. Some states have no income tax (Florida, Texas, Wyoming, and others), so residents of those states owe only federal tax on conversions.

If you live in a state with income tax and convert a large amount, state tax can add 3% to 13% to your total tax bill, depending on the state and your bracket. A few states have special rules — for example, some do not tax retirement income — but most treat conversions the same way the IRS does.

Check your state's tax agency website or speak with a tax preparer if you are unsure whether your state taxes conversions. The state tax is due by the same April 15 deadline as federal tax.

What happens if you convert but cannot pay the tax bill

You still owe the tax even if you do not have the cash to pay it by April 15. The IRS will charge interest and penalties if you do not pay on time. You can set up a payment plan with the IRS to pay over time, but interest accrues while you pay.

Some people convert money and use part of it to pay the tax bill. Others keep the conversion amount in the Roth and pay the tax from other savings. Either way, the tax is due. If you cannot afford the tax bill, converting a smaller amount or waiting for a lower-income year may be a better choice.

How conversions affect other tax calculations

The conversion amount counts toward your income for the year, which can affect other tax situations. If you are close to income limits for certain deductions or credits — like the child tax credit, education credits, or the standard deduction phase-out — a large conversion can reduce those benefits.

Conversions can also affect Medicare premiums. If you are on Medicare, higher income in a given year can increase your premiums two years later through the Income-Related Monthly Adjustment Amount (IRMAA). A large conversion in one year might raise your premiums in two years, even though the conversion itself is a one-time event.

If you receive Social Security, a conversion can push more of your benefits into taxable income. The rules are complex, but the basic idea is that higher income in a year makes more of your Social Security taxable. This is another reason to plan conversions carefully and consider spreading them across multiple years.

Frequently Asked Questions

Can I undo a conversion if I do not want to pay the tax?

You can reverse a conversion through a process called a recharacterization, but only within certain time limits and under specific circumstances. The rules changed in 2018, and now recharacterizations are generally only allowed if you made a mistake or want to undo a conversion within the same tax year. Speak with a tax professional about your specific situation.

Do I have to pay the tax from the conversion amount, or can I pay it from other money?

You can pay the tax from any source — savings, income, or other assets. You do not have to withdraw it from the Roth account. However, if you use money from the Roth to pay the tax, that money counts as a distribution and may be subject to early withdrawal penalties if you are under 59½.

What if I convert in December — do I owe tax that same year?

Yes. The conversion is taxable in the year it occurs, regardless of when you convert it. A December conversion is taxed in that same tax year, not the following year. You report it on your tax return filed in April of the following year, but the tax year is the year the conversion happened.

Does the conversion affect my tax refund or owed amount?

Yes. The conversion increases your taxable income, which usually means you owe more tax or receive a smaller refund. If you normally receive a refund, a conversion might reduce it or turn it into a tax bill. If you normally owe tax, a conversion increases what you owe.