How a Roth conversion actually works

A Roth conversion means moving money from a traditional IRA, SEP-IRA, SIMPLE IRA, or a 401(k) into a Roth IRA. You withdraw the money from the old account, pay income tax on it in that tax year, and deposit it into the Roth account. The IRS treats the withdrawal as taxable income, but once the money sits in the Roth, future growth and withdrawals are tax-free.

The conversion itself takes a few weeks to complete, but the tax consequence happens immediately in the year you convert. You do not need permission from your employer or the IRA custodian — you initiate it yourself by requesting a distribution from the source account and then depositing it into a Roth IRA at the same institution or a different one.

The key difference from a regular withdrawal is that you must deposit the money into a Roth account within 60 days, or the IRS treats it as a taxable distribution you cannot undo. If you miss the deadline, you owe tax on the full amount and cannot recover it by depositing later.

Key Takeaways

  • You initiate a conversion by requesting a distribution from your traditional IRA or 401(k), then deposit that money into a Roth IRA within 60 days.
  • The amount you convert is taxable income in the year of conversion, and you owe tax on the full withdrawal amount regardless of how much you contributed originally.
  • You can convert any amount at any time — there are no annual limits on conversions, though the tax bill can be substantial.
  • The 60-day deadline is strict; if you miss it, the IRS treats the money as a regular withdrawal and you cannot recover the tax consequences.
  • You can do a conversion through a direct trustee-to-trustee transfer, which avoids the 60-day clock and is the safest method.

Step 1: Decide what to convert and calculate the tax bill

Before you move any money, figure out how much you want to convert and what you will owe in taxes. The entire amount you convert becomes taxable income in that year. If you convert $50,000, you add $50,000 to your taxable income for the year, which may push you into a higher tax bracket.

If you have multiple traditional IRAs, SEP-IRAs, or SIMPLE IRAs, the IRS requires you to count all of them together when calculating tax on a conversion. This is called the pro-rata rule. If you have $100,000 in traditional IRAs and $20,000 in after-tax contributions across all accounts, converting $50,000 means roughly $40,000 of that conversion is taxable (80 percent of the total). You cannot cherry-pick only the after-tax money to convert.

Talk to a tax professional or use tax software to estimate your tax bill before you convert. The tax is due when you file your return for that year, not when you move the money. Some people convert in a low-income year to keep the tax bill smaller.

Step 2: Open a Roth IRA if you do not have one

You need a Roth IRA account open before you convert. You can open one at any bank, brokerage, or investment firm that offers IRAs — Fidelity, Vanguard, Schwab, your local credit union, or many others. The process takes 10 to 15 minutes online and requires your Social Security number, address, and employment information.

You do not need to fund the account with your own money first. You can open it empty and then deposit the converted funds into it. Make sure the account is titled as a Roth IRA, not a traditional IRA, or the deposit will go to the wrong account type.

Step 3: Request a distribution from your source account

Contact the financial institution that holds your traditional IRA or 401(k) and ask for a distribution. Tell them the amount you want to withdraw and ask whether they can do a direct trustee-to-trustee transfer to your Roth IRA, or whether you need to take a check.

A trustee-to-trustee transfer is the safest route. The money moves directly from one institution to the other without passing through your hands. You do not have to worry about the 60-day deadline because the IRS does not count trustee-to-trustee transfers as distributions to you. Request this method if the institution offers it.

If the institution will only send you a check, ask them to make it payable to the Roth IRA custodian (not to you personally). This is called a "custodian check" and it still counts as a trustee-to-trustee transfer. A check made out to you personally starts the 60-day clock.

Step 4: Deposit the money into your Roth IRA within 60 days

If you received a check made out to you, deposit it into your Roth IRA account as soon as possible. You have 60 calendar days from the date you received the distribution to deposit it. If you miss this deadline, the IRS treats the money as a taxable withdrawal you cannot undo, and you lose the conversion benefit.

When you deposit the money, make sure it goes into the Roth IRA account you opened, not a savings account or checking account. Contact your Roth IRA custodian and ask how to deposit the check — you may need to mail it, deposit it through their website, or bring it to a branch.

Keep a record of the deposit date. You will need it when you file your tax return.

Step 5: Report the conversion on your tax return

When you file your federal income tax return for the year you converted, you must report the conversion. You will receive a Form 1099-R from the financial institution that distributed the money. This form shows the gross amount of the distribution.

On your tax return, you report the taxable amount of the conversion. If you had after-tax contributions in your traditional IRAs, you may be able to exclude part of the conversion from income using Form 8606. A tax professional can help you fill this out correctly, especially if you have a mix of pre-tax and after-tax money.

The tax on the conversion is due when you file your return. You can pay it with your return, or if you expect a large bill, you can make estimated tax payments during the year to avoid penalties.

What happens if you miss the 60-day deadline

If you receive a check and do not deposit it into your Roth IRA within 60 days, the IRS treats the entire amount as a taxable distribution. You owe income tax on it, and you cannot convert it retroactively. The money stays in your hands as taxable income for that year.

If you made a mistake and missed the deadline by a few days, you can ask the IRS for a waiver of the 60-day rule. This is called a "private letter ruling" and requires hiring a tax attorney or CPA to file the request. The IRS grants these occasionally for circumstances beyond your control, such as a bank error or a death in the family, but not for simple forgetfulness. The process takes several months and costs money in professional fees.

The safest way to avoid this problem is to use a trustee-to-trustee transfer, which has no 60-day deadline.

Frequently Asked Questions

Can I convert money from my 401(k) at work?

Yes, but only if your plan allows it. Some 401(k) plans permit in-service distributions or conversions, and some do not. Ask your plan administrator whether you can convert to a Roth IRA. If your plan does not allow conversions while you are still employed, you can convert after you leave the job by rolling the 401(k) into a traditional IRA first, then converting that IRA to a Roth.

Do I have to convert all my IRAs at once?

No. You can convert one IRA, some of your IRAs, or all of them. You can also convert different amounts in different years. However, the pro-rata rule applies to all your traditional IRAs combined, so converting a small amount does not let you avoid tax on the after-tax portion of your total IRA balance.

What if I convert and then the market drops?

You still owe tax on the full amount you converted, even if the account value falls after the conversion. You cannot undo a conversion to avoid the tax. However, you can do a "recharacterization" within a certain window if your plan allows it, which reverses the conversion — but this is rare and has strict rules. Talk to a tax professional if this happens.

Can I convert if I have a high income?

Yes. There are no income limits on conversions. You can convert any amount regardless of how much you earn. This is different from direct contributions to a Roth IRA, which have income limits.

How long does a conversion take?

A trustee-to-trustee transfer usually takes one to two weeks. A check sent to you may take longer depending on mail delivery and how quickly you deposit it. Once the money is in your Roth IRA, the conversion is complete, though the tax consequence does not occur until you file your return.