How a Roth Conversion Works and What It Means for Your Taxes

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

A Roth conversion is a 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 the money will sit in the account, and what you expect your tax bracket to be when you retire.

You can convert as much or as little as you want in a given year, but there is no income limit on who can do a conversion. This matters because high earners who cannot contribute directly to a Roth IRA sometimes use conversions as a workaround.

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.
After conversion, the money grows tax-free and can be withdrawn tax-free in retirement, provided the account has been open at least five years and you are at least 59½.
There is no income limit on who can convert, even if you earn too much to contribute to a Roth IRA directly.
If you have multiple traditional IRAs, the IRS treats them as one account for tax purposes when you convert, which can create unexpected tax bills.
You can convert part of an account or all of it, and you can do conversions in multiple years.

How the tax bill works when you convert

When you convert money from a traditional account to a Roth, the IRS counts that amount as ordinary income for the year of the conversion. If you convert $50,000, you add $50,000 to your taxable income that year. Your tax bill depends on your tax bracket and what other income you earned.

The converted amount is taxed at your marginal rate — the rate that applies to your highest dollars of income. If you are in the 24% federal bracket, converting $50,000 costs you roughly $12,000 in federal tax (before state taxes, which vary). Some people convert smaller amounts over several years to stay in a lower bracket.

You owe the tax from your own pocket, not from the converted money. If you use money from the conversion itself to pay the tax bill, you are converting less than you intended, and the IRS may treat the tax payment as a second, smaller conversion.

The five-year rule and when you can withdraw

Money in a Roth IRA can be withdrawn tax-free once two conditions are met: the account must have been open for at least five tax years, and you must be at least 59½ years old (with some exceptions for disability or first-time home purchase). The five-year clock starts on January 1 of the year you open the Roth, not the year you convert into it.

If you convert at age 50 and withdraw at age 55, you meet the age requirement but not the five-year requirement, so you owe tax and a 10% penalty on the earnings portion of the withdrawal. The original contribution (the amount you converted) comes out tax-free, but the growth does not.

Each conversion has its own five-year clock. If you convert in 2024 and again in 2025, the 2024 conversion can be withdrawn tax-free starting in 2029, and the 2025 conversion in 2030.

The pro-rata rule and why multiple IRAs complicate things

If you have both a traditional IRA and a Roth IRA, and you convert part of the traditional IRA, the IRS does not let you pick which dollars convert. Instead, it applies the pro-rata rule: the conversion is treated as coming proportionally from all your traditional IRAs combined.

Example: You have a traditional IRA with $100,000 (of which $20,000 is pre-tax contributions and $80,000 is after-tax contributions) and you want to convert $20,000. The IRS treats the $20,000 as 80% pre-tax money and 20% after-tax money. You owe tax on the $16,000 pre-tax portion, even though you only converted $20,000 total.

This rule catches many people off guard. If you have after-tax money in a traditional IRA and want to convert only that after-tax portion tax-free, the pro-rata rule prevents it. The workaround is to move pre-tax money to a 401(k) first (if your employer plan allows it), which removes it from the pro-rata calculation.

When a conversion makes financial sense

A conversion is most useful when your current tax bracket is lower than you expect it to be in retirement. This happens if you take a year off work, retire early before claiming Social Security, or expect tax rates to rise. It also makes sense if you have a large amount of after-tax money in a traditional IRA and want to move it to a Roth tax-free.

Conversions can also be a way to move money into a tax-free account when you have hit the contribution limits on a Roth IRA. High earners who cannot contribute directly to a Roth sometimes convert from a traditional IRA instead, though this triggers the pro-rata rule if they have other traditional IRAs.

A conversion does not make sense if you expect to be in a higher tax bracket in retirement, or if you need the money within five years and do not want to pay the penalty. It also does not make sense if you will owe so much tax that the money never has time to grow back before you need it.

Conversions and required minimum distributions

Once you turn 73, you must take required minimum distributions (RMDs) from traditional IRAs and 401(k)s each year. Roth IRAs do not have RMDs during your lifetime. Converting money to a Roth before you turn 73 can reduce the size of future RMDs and the tax bill that comes with them.

You cannot convert money to avoid an RMD you already owe in the current year. The RMD must be taken first, and then you can convert the remainder if you choose. Some people take a larger RMD than required and convert the extra, which increases the current year tax bill but shrinks future RMDs.

Frequently Asked Questions

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

You can recharacterize a conversion — move the money back to a traditional IRA — but only within certain time limits and under specific rules. The rules changed in 2018, and recharacterization is now much more limited. Consult a tax professional before converting if you think you might want to reverse it.

Do I have to convert my entire traditional IRA at once?

No. You can convert part of a traditional IRA and leave the rest untouched. You can also do multiple conversions in different years. Each conversion is a separate taxable event with its own tax bill.

What happens to a Roth conversion if I die before I turn 59½?

Your beneficiary inherits the Roth IRA and can withdraw the money. The five-year rule still applies to the earnings, but the original contribution (what you converted) comes out tax-free. Your beneficiary may owe tax on the earnings portion if they withdraw before the five-year period ends.

Does a Roth conversion affect my Social Security benefits or Medicare premiums?

Yes. The converted amount counts as income for the year of the conversion, which can push you into a higher tax bracket and increase your Medicare premiums. It can also affect how much of your Social Security is taxed. Run the numbers with a tax professional before converting in a year you claim Social Security.

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

Yes, if your 401(k) plan allows it. Some plans do not permit in-service conversions, so check with your plan administrator first. You can also roll a 401(k) to a traditional IRA and then convert to a Roth, though this triggers the pro-rata rule if you have other traditional IRAs.

This guide is for general information only and is not medical, financial, legal, or other professional advice. For decisions specific to your situation, consult a qualified professional. See our Editorial Policy.