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

A Roth conversion is a one-time transfer of money from a traditional IRA, SEP-IRA, SIMPLE IRA, or a traditional 401(k) into a Roth IRA. You pay income tax on the amount you convert in the year you move it. After that, the money grows tax-free in the Roth account, and you can withdraw it tax-free in retirement if you follow the rules.

The trade-off is straightforward: you owe taxes now to avoid taxes later. Whether that makes sense depends on your current tax bracket, how long until you retire, and what you think tax rates will be in the future. There is no government approval process — you initiate the conversion yourself through your bank or brokerage — but the IRS tracks it, and mistakes can be expensive.

A conversion is different from a regular contribution. You cannot contribute more than the annual limit to a Roth IRA (the limit is $7,000 in 2024, or $8,000 if you are 50 or older), but a conversion has no dollar cap. You can convert $50,000 or $500,000 if you have that much in a traditional account. The catch is that you pay tax on every dollar you convert.

Key Takeaways

  • A Roth conversion requires you to pay income tax on the converted amount in the year you move the money, calculated at your ordinary income tax rate.
  • You can convert any amount from a traditional IRA or 401(k) to a Roth IRA — there is no annual limit, unlike regular Roth contributions.
  • After the conversion, the money grows tax-free and can be withdrawn tax-free in retirement, provided you follow Roth withdrawal rules.
  • If you have both traditional and Roth IRAs, the IRS treats all of them as one account for tax purposes when you convert, which can create an unexpected tax bill.

Why someone converts: lower taxes in retirement or more control over withdrawals

People convert for two main reasons. The first is tax planning: if you expect to be in a higher tax bracket in retirement than you are now, paying tax today at a lower rate saves money over time. This might apply if you are taking a sabbatical, between jobs, or in a year when your income is unusually low.

The second reason is withdrawal flexibility. Traditional IRAs require you to start taking withdrawals at age 73 (as of 2023), and the IRS calculates the minimum amount based on your age and account balance. Roth IRAs have no required withdrawals during your lifetime. If you do not need the money, a Roth conversion lets you leave it untouched and pass it to heirs tax-free. This appeals to people who have enough other income to live on and want to preserve wealth.

A third, less common reason is the "backdoor Roth" strategy. If your income is too high to contribute directly to a Roth IRA, you can contribute to a traditional IRA (which has no income limit) and then immediately convert it to a Roth. The contribution itself is not tax-deductible at high incomes, so you owe little or no tax on the conversion. This is legal but requires careful record-keeping.

The tax bill: how much you owe depends on the size of the conversion and your other income

When you convert, the IRS treats the converted amount as ordinary income for that tax year. If you convert $50,000, you add $50,000 to your taxable income. Your tax bill is that $50,000 multiplied by your marginal tax rate — the rate you pay on your last dollar of income.

Your marginal rate depends on your filing status and total income that year. In 2024, if you are single and your income (including the conversion) falls in the 22% bracket, you owe roughly $11,000 in federal tax on a $50,000 conversion. If you are in the 32% bracket, it is roughly $16,000. State income tax, if your state has it, is added on top.

The conversion also affects other tax calculations. It can push you into a higher Medicare premium bracket, reduce the amount of Social Security benefits you can exclude from tax, or disqualify you from certain deductions. Before converting a large amount, it is worth running the numbers with a tax professional to see the full impact.

The pro-rata rule: why having both traditional and Roth IRAs complicates things

If you have money in both a traditional IRA and a Roth IRA, the IRS does not let you convert only the pre-tax money and leave the after-tax money behind. Instead, it treats all your IRAs as one combined account for conversion purposes. This is called the pro-rata rule.

Here is how it works: suppose you have a traditional IRA with $100,000 (all pre-tax contributions) and a Roth IRA with $20,000. You want to convert $50,000 from the traditional IRA. The IRS looks at your total: $120,000. Of that, $100,000 is pre-tax and $20,000 is after-tax. That means 83% is pre-tax. So on your $50,000 conversion, $41,500 is treated as taxable income and $8,500 is not. You owe tax on $41,500, not $50,000.

This rule catches many people off guard. If you have a small Roth IRA and a large traditional IRA, converting becomes expensive because you cannot isolate the after-tax portion. Some people solve this by rolling the traditional IRA into a 401(k) at work (if their plan allows it), which removes it from the pro-rata calculation and lets them convert only the Roth IRA money tax-free.

How to do a conversion: the mechanics and timing

A conversion is a direct transfer from one account to another. You contact your bank or brokerage and ask to convert a specific amount from your traditional IRA (or 401(k)) to your Roth IRA. The institution handles the paperwork. You do not withdraw the money yourself and deposit it — that would be a taxable distribution, not a conversion, and it triggers a 60-day rollover window that can create problems.

The conversion is reported on Form 8606, which you file with your tax return for the year of the conversion. The form calculates how much of the conversion is taxable based on the pro-rata rule. If you mess up the form or do not file it, the IRS may assess penalties or disallow the conversion.

Timing matters. You can do a conversion any time during the year, but the tax is owed in the year you convert. If you convert in December, you still owe tax on your April tax return the following spring. Some people convert early in the year to spread the tax impact across two calendar years, though the tax is still owed in one tax year.

Withdrawal rules after a conversion: when you can take the money out

After you convert, the money sits in your Roth IRA and grows. The withdrawal rules are strict. You can withdraw your contributions (the money you put in) at any time without tax or penalty. But you cannot withdraw the earnings (the growth) until you are 59½ and the Roth account has been open for at least five years.

The converted amount is treated as a contribution for withdrawal purposes, so you can pull it out early if you need it. But if you withdraw earnings before 59½, you owe income tax on them plus a 10% penalty. There are a few exceptions — disability, medical expenses, first-time home purchase — but they are narrow and require documentation.

The five-year rule applies separately to each conversion. If you convert in 2024 and again in 2025, you cannot withdraw earnings from the 2024 conversion until 2029, and earnings from the 2025 conversion until 2030. Tracking multiple conversions is tedious, which is another reason to work with a tax professional if you plan to convert repeatedly.

Recharacterization: undoing a conversion if you change your mind

If you convert and then the market drops, or you realize the tax bill is too high, you cannot simply undo it. The Tax Cuts and Jobs Act of 2017 eliminated recharacterization — the ability to reverse a conversion and move the money back to a traditional IRA.

You are stuck with the conversion and the tax bill, even if the account value falls after you convert. This is why some people convert in small amounts over multiple years rather than one large conversion: it spreads the tax risk and gives you more flexibility if circumstances change.

The only exception is if you convert to the wrong Roth IRA by mistake — for example, you meant to convert to your own Roth but it went to a spouse's account. In that narrow case, you can recharacterize to fix the error. Otherwise, once the conversion is done, it stays done.

Frequently Asked Questions

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. However, the pro-rata rule applies to the entire amount you convert, not just the portion you move. If you have $100,000 in a traditional IRA and $20,000 in a Roth, converting $50,000 triggers the pro-rata calculation across all your IRAs.

Can I convert a 401(k) directly to a Roth IRA?

Yes, but only if you no longer work for the employer who sponsors the 401(k). If you still work there, you usually cannot convert. After you leave the job, you can roll the 401(k) into a traditional IRA and then convert to a Roth, or some plans allow a direct conversion. Check with your plan administrator first.

What happens if I convert and then my income goes up unexpectedly?

You still owe tax on the conversion at your marginal rate for that year, even if your income rises after you convert. The tax is calculated based on your total income for the entire year. This is why some people convert early in the year — if a bonus or windfall comes later, they know the full tax impact.

Can my spouse and I do a conversion together?

Each person converts their own accounts. Your spouse can convert their traditional IRA to their Roth IRA, and you can convert yours. The pro-rata rule applies separately to each of you based on your own IRA balances, not combined.

Is there an income limit for doing a Roth conversion?

No. Unlike direct Roth contributions, which have income limits, anyone can do a Roth conversion regardless of how much they earn. This is why the backdoor Roth strategy works for high-income earners who would otherwise be locked out of Roth accounts.