Yes, you can convert a traditional IRA to a Roth, but you'll owe income tax on the money you move

A Roth conversion means moving money from a traditional IRA into a Roth IRA. The IRS allows this at any time, regardless of your age or income. The catch: you pay ordinary income tax on the amount you convert in the year you do it, calculated as if that money were regular income added to your salary.

The conversion itself is straightforward — you contact your IRA custodian (the bank or brokerage holding your account) and request a direct transfer to a Roth IRA. No early withdrawal penalty applies, even if you're under 59½. But the tax bill arrives when you file your return the following year.

Whether a conversion makes sense depends on your current tax bracket, how long you'll hold the Roth, and whether you have other traditional IRA balances. A conversion can be worth it if you expect to be in a higher tax bracket later, or if you want tax-free growth for decades. It's a poor choice if the tax bill would strain your cash flow or if you're already in a high bracket.

Key Takeaways

  • You can convert any amount from a traditional IRA to a Roth IRA at any age, but you must pay income tax on the full amount converted in that tax year.
  • The conversion is a direct transfer between accounts — you don't withdraw the money yourself, and no early withdrawal penalty applies even under age 59½.
  • If you have multiple traditional IRAs, the IRS treats all of them as one pool for tax purposes, so you can't convert just the pre-tax portion and leave the after-tax portion behind.
  • You have until the tax filing deadline (usually April 15) of the year after the conversion to undo it, but this option is only available in certain circumstances.
  • A conversion makes the most sense when you're in a lower tax bracket now than you expect to be in retirement, or when you want decades of tax-free growth.

How the conversion process works step by step

Contact the financial institution that holds your traditional IRA — this is your custodian, typically a bank, brokerage, or investment company. Tell them you want to convert the account (or a portion of it) to a Roth IRA. They will give you a form to sign.

The custodian can move the money directly to a Roth IRA at the same institution or transfer it to a Roth IRA at a different custodian. A direct transfer is cleanest because the money never touches your hands. If you withdraw the money yourself, you have 60 days to deposit it into a Roth IRA, or the IRS treats it as a taxable distribution — this route is riskier and not recommended.

Once the transfer completes, the custodian reports it to the IRS on Form 8606. You will receive a copy for your records. When you file your tax return the following year, you report the conversion on the same form and pay tax on the amount converted at your ordinary income tax rate.

Understanding the tax bill and when you owe it

The tax you owe depends on how much you convert and what your total income is that year. If you convert $50,000 from a traditional IRA, the IRS adds $50,000 to your taxable income for that year. If you're in the 24% federal tax bracket, you'll owe roughly $12,000 in federal tax on that conversion (plus any state income tax, depending on where you live).

The tax is due when you file your return, typically by April 15 of the following year. You can pay it from the converted funds themselves, but most people pay from other savings to leave the full amount growing in the Roth. If you don't have cash to cover the tax bill, the conversion may not be practical.

One important rule: if you have both pre-tax and after-tax money in traditional IRAs, the IRS requires you to calculate tax on a blended basis. You cannot convert only the after-tax portion and avoid tax on the pre-tax portion. This is called the pro-rata rule, and it applies across all your traditional IRAs, SEP IRAs, and SIMPLE IRAs combined.

When a conversion makes financial sense

A conversion is often worth considering if you're in a lower tax bracket this year than you expect to be in retirement. For example, if you took early retirement, had a year with reduced income, or are between jobs, converting at a lower rate now means paying less tax overall than you would if you withdrew the money in retirement at a higher rate.

A conversion also makes sense if you want the Roth to grow tax-free for many years. Money in a Roth IRA grows without annual tax, and you never have to withdraw it during your lifetime. If you're young or have a long time horizon, the decades of tax-free compounding can outweigh the upfront tax cost.

Conversions are less attractive if you're already in a high tax bracket, if you'll need the money within a few years, or if you expect to be in a lower bracket in retirement. They're also problematic if you don't have separate funds to pay the tax bill — using the converted money to pay the tax defeats much of the benefit.

The pro-rata rule and why it matters

The pro-rata rule is the most common reason conversions become complicated. It says that if you own any pre-tax money in any traditional IRA (including SEP IRAs and SIMPLE IRAs), a percentage of every conversion is taxable based on your total pre-tax balance.

Example: You have $100,000 in a traditional IRA (pre-tax) and $20,000 in a Roth IRA. You want to convert $20,000 from the traditional IRA. The IRS calculates: $100,000 pre-tax divided by $120,000 total = 83% of the conversion is taxable. So you owe tax on $16,600 of the $20,000 you converted, not $0.

The rule applies across all your IRAs combined, not account by account. If you have a traditional IRA at one bank and another at a different bank, the IRS still treats them as one pool. There is no way around this rule — you cannot isolate after-tax contributions and convert only those.

Undoing a conversion (recharacterization)

In limited circumstances, you can undo a conversion. This is called a recharacterization, and it must happen by the tax filing deadline (usually April 15) of the year after the conversion. You contact your custodian and request that the converted funds be moved back to a traditional IRA.

Recharacterization is useful if the market drops after your conversion and you regret the tax bill, or if your income situation changes unexpectedly. However, the rules are strict: you can only recharacterize once per year, and you cannot recharacterize a conversion that you already reported on your tax return.

Most people do not recharacterize because the conversion was intentional and the market risk is part of the decision. But the option exists if circumstances change before your tax deadline.

Roth conversions and Medicare premiums

A conversion increases your taxable income for that year, which can affect your Medicare premiums if you're on Medicare. The IRS uses your Modified Adjusted Gross Income (MAGI) from two years prior to set your premiums. A large conversion in one year can push your income higher and increase your Part B and Part D premiums for the following two years.

If you're approaching Medicare age and considering a conversion, calculate the impact on your premiums before you proceed. Sometimes the extra premium cost outweighs the benefit of the conversion. Your tax professional or financial advisor can model this for you.

Frequently Asked Questions

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

No. You can convert part of your traditional IRA and leave the rest untouched. However, the pro-rata rule still applies — if you have pre-tax money in any traditional IRA, a portion of every partial conversion is taxable based on your total pre-tax balance across all IRAs.

What if I'm over 70½ and have required minimum distributions?

You can still convert. A conversion is separate from a required minimum distribution (RMD). However, you must take your RMD first in the year you convert. The RMD amount cannot be converted — it must be withdrawn and is taxable. Any amount above your RMD can be converted.

Can I convert if my income is too high for a Roth IRA?

Yes. There is no income limit on conversions, even though there are income limits on direct contributions to a Roth. This is why high-income earners often use conversions as a backdoor way to fund a Roth IRA.

What happens to the money I convert if the market drops?

The money stays in your Roth IRA and continues to grow. You still owe tax on the amount you converted, even if the account value drops after the conversion. This is why some people recharacterize if the market falls sharply right after a conversion — you can undo it and try again later.

Do I need to report a conversion on my tax return?

Yes. Your custodian reports it to the IRS on Form 8606, and you must file the same form with your tax return. The conversion is not automatic — you must report it to claim any non-taxable portion and to establish your basis in the Roth IRA.