A Roth conversion moves money from a traditional retirement account into a Roth account

A Roth conversion is a transaction where you take money from a traditional IRA, SEP-IRA, SIMPLE IRA, or a traditional 401(k) and move it into a Roth IRA. The money goes into the Roth account, but you pay income tax on the amount you convert in that same tax year. After the conversion, that money grows tax-free in the Roth account, and you can withdraw it tax-free in retirement under certain conditions.

The conversion itself is not a loan or a transfer that avoids taxes. You are moving pre-tax dollars (or after-tax dollars, depending on your account) and treating that movement as taxable income. The IRS taxes the conversion as ordinary income, which means it gets added to your other income for the year and taxed at your marginal rate.

You do not have to convert your entire account. You can convert a portion of a traditional IRA, or convert from a 401(k) to a Roth IRA. The amount you convert is up to you, though some account types have rules about which portions you can move.

Key Takeaways

  • A Roth conversion moves money from a traditional retirement account to a Roth IRA and triggers income tax on the converted amount in that tax year.
  • After conversion, the money grows tax-free and can be withdrawn tax-free in retirement if you meet the Roth IRA holding period and age requirements.
  • You can convert a partial amount from your traditional account; you do not have to convert everything at once.
  • The conversion increases your taxable income for the year, which can affect tax brackets, Medicare premiums, and other income-based benefits.
  • Conversions are permanent once completed; you cannot undo them after the tax filing deadline for that year.

Why someone would convert to a Roth account

The main reason to convert is to move money into an account where future growth and withdrawals are tax-free. If you expect your tax rate to be higher in retirement than it is now, converting at a lower rate today saves you money later. If you are in a lower income year—due to job loss, sabbatical, or early retirement before Social Security starts—that year may be a good time to convert.

A Roth conversion also removes money from your traditional IRA balance, which lowers your required minimum distributions (RMDs) in later years. Smaller RMDs mean less forced taxable income when you turn 73, which can keep you in a lower tax bracket and reduce the tax impact on Social Security benefits or Medicare premiums.

Some people convert to simplify their accounts or to leave a tax-free inheritance. Roth IRAs do not require withdrawals during the account holder's lifetime, so the account can grow and pass to heirs tax-free (though heirs must withdraw the money over a set period).

The tax bill you owe when you convert

The amount of tax you owe depends on how much you convert and your total income for the year. If you convert $50,000, you owe income tax on $50,000 as if it were wages. That $50,000 is added to your other income—salary, Social Security, investment gains—and taxed at your marginal rate.

If you are in the 22 percent federal tax bracket, a $50,000 conversion costs roughly $11,000 in federal tax (though the exact amount depends on state tax, whether the conversion pushes you into a higher bracket, and other factors). You owe this tax when you file your return for that year. You can pay it from the converted funds themselves, but that reduces the amount that ends up in your Roth account.

The tax bill is due on April 15 of the following year, unless you request an extension. Some people pay estimated taxes during the year to avoid a large bill at tax time.

How a conversion affects your other finances that year

Because a conversion increases your taxable income, it can trigger or worsen several tax-related consequences. If you are close to a higher tax bracket, the conversion might push you into it, raising the tax rate on the converted amount itself. If you take Social Security, a higher income year can make more of your benefits taxable. If you are on Medicare, a higher income can raise your premiums for Parts B and D.

A conversion can also affect your ability to claim certain deductions or credits that phase out at higher incomes, such as the child tax credit or education credits. Before converting, it helps to look at your full tax picture for the year—not just the conversion in isolation.

These effects are temporary and limited to the year of conversion. Once the year ends, your income returns to normal, and so do your tax brackets and benefit calculations. But the timing matters: if you are in a year with unusually high income already, converting that same year may cost more in tax than converting in a lower-income year.

The rules for withdrawing money from a Roth account after conversion

After you convert, the money sits in your Roth IRA and grows. You can withdraw your contributions (the amount you put in) at any time without tax or penalty. But the earnings—the growth on that money—are subject to rules.

To withdraw earnings tax-free, you must be at least 59½ years old and have held the Roth IRA for at least five tax years. The five-year clock starts on January 1 of the year you first contributed to any Roth IRA, not the year you converted. If you converted at age 50 but opened your first Roth IRA at age 45, the five-year requirement is already met.

If you withdraw earnings before age 59½ or before the five-year period ends, you owe income tax on the earnings and a 10 percent penalty. There are exceptions—such as disability, death, or a first-time home purchase up to $10,000—but they are narrow.

The pro-rata rule and why it matters if you have other IRAs

If you have both a traditional IRA and a Roth IRA, the IRS applies the pro-rata rule to conversions. This rule treats all your traditional IRAs as a single pool for tax purposes. If you convert $50,000 from a traditional IRA but also have $150,000 in other traditional IRAs, the IRS considers you converting from a pool of $200,000.

The pro-rata rule calculates what portion of your total traditional IRA balance is after-tax money (money you already paid tax on) versus pre-tax money (money that was deducted from your income). Only the pre-tax portion of the conversion is taxable. If 75 percent of your $200,000 pool is pre-tax, then 75 percent of your $50,000 conversion—$37,500—is taxable.

This rule can make conversions expensive if you have a large traditional IRA balance. Some people move their traditional IRA into a 401(k) plan (if their employer allows it) to remove it from the pro-rata calculation, then convert the remaining traditional IRA amount at a lower tax cost.

Conversions from employer plans like 401(k)s

You can convert money from a traditional 401(k), 403(b), or similar employer plan directly to a Roth IRA, but only if you are no longer employed by that company. If you still work there, most plans do not allow in-service conversions to a Roth account (though some plans have changed this rule in recent years—check with your plan administrator).

When you leave a job, you can roll your 401(k) into a traditional IRA and then convert from the IRA to a Roth. Or, if your new employer's plan accepts rollovers, you can roll the 401(k) directly into the new plan, keeping it separate from your other IRAs and potentially avoiding the pro-rata rule.

Conversions from employer plans are taxed the same way as IRA conversions: you owe income tax on the pre-tax portion of the amount you convert in the year you convert it.

Frequently Asked Questions

Can I undo a Roth conversion if I change my mind?

No, not anymore. Before 2018, you could recharacterize a conversion—essentially undo it—by October 15 of the following year. That option was removed by tax law changes. Once you convert, the transaction is permanent, and you owe the tax on that year's return. If the conversion turns out to have been a bad decision, you cannot reverse it.

Do I have to convert all my traditional IRA money at once?

No. You can convert part of your traditional IRA and leave the rest untouched. You can also do multiple conversions in different years. Some people convert a small amount each year to spread the tax bill across several years and stay in a lower tax bracket.

What happens if I convert but do not have the money to pay the tax bill?

You still owe the tax on April 15. If you cannot pay it, you can request a payment plan from the IRS, but you will owe interest and penalties on the unpaid amount. Some people pay the tax from other savings or take a loan. Do not use the converted Roth funds to pay the tax unless you have no other option, because that reduces the amount growing tax-free.

Does a Roth conversion count as income for Social Security or Medicare purposes?

Yes. The converted amount is added to your income for that year, which can increase the portion of Social Security that is taxable and raise your Medicare premiums. This effect lasts only that year. If you are on Medicare, check your premium notices the following year; they may increase based on the higher income.

Can I convert if my income is too high?

There is no income limit on conversions themselves. You can convert at any income level. However, if you have earned income and want to contribute directly to a Roth IRA (not a conversion), high income does disqualify you. Conversions are different and are open to everyone.