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A Roth IRA is a retirement savings account that offers tax-free qualified withdrawals during retirement. You can convert a traditional IRA or a qualified distribution from a previous employer-sponsored plan, such as a 401(k), into a Roth IRA. This is known as a Roth IRA conversion.
A Roth IRA conversion may be worth considering for the potential tax benefits. Along with tax-free qualified withdrawals in retirement, the money in a Roth IRA has the potential to grow tax-free. Read on to learn how a conversion works, the Roth conversion rules, and whether a Roth IRA conversion may make sense for you.
Key Points
• A Roth IRA conversion moves funds from a traditional IRA or employer-sponsored retirement plan like a 401(k) into a Roth IRA, allowing the money to potentially grow tax-free during retirement.
• Taxes must be paid on all contributions and earnings in the year of conversion, since only after-tax money is allowed in a Roth IRA; this might push an individual into a higher tax bracket.
• There is no limit on the number or size of Roth IRA conversions allowed, and converting smaller amounts over several years may help manage the tax burden in any single year.
• A backdoor Roth IRA conversion may benefit high earners who exceed the 2026 Roth IRA income phase-out ranges.
• The 5-year rule requires converted funds to remain in the Roth IRA account for at least five years to avoid a 10% early withdrawal penalty for those under age 59 ½.
What Is a Roth IRA Conversion?
With a Roth IRA conversion, an individual moves the funds from another retirement plan into a Roth IRA. They pay typically taxes on the money in their existing account to move it to a Roth IRA.
Many retirement plans, such as 401(k)s and traditional IRAs are tax-deferred. The money is contributed to the account with pre-tax dollars, and in retirement, taxes are paid on withdrawals. By doing a Roth conversion, you pay taxes on the money you convert to a Roth IRA, and the money can then potentially grow tax-free in the Roth account. In retirement, you can generally make qualified withdrawals from the Roth IRA tax-free.
How Does a Roth IRA Conversion Work?
When converting to a Roth IRA, an individual must pay taxes on the contributions and gains in their current retirement plan because only after-tax contributions are allowed to a Roth IRA. They can typically convert their funds to a Roth IRA in one of three ways:
• An indirect rollover: With this method, the owner of the account receives a distribution from a traditional IRA or 401(k) and can then contribute it to a Roth IRA within 60 days.
• A trustee-to-trustee, or direct IRA rollover: The account owner tells the financial institution currently holding the traditional IRA or 401(k) assets to transfer an amount directly to the trustee of a new Roth IRA account at a different financial institution.
• A same-trustee transfer: This is used when a traditional IRA is housed in the same financial institution or online brokerage as the new Roth IRA. The owner of the account alerts the institution to transfer an amount from the traditional IRA to the Roth IRA.
Recommended: IRA Transfer vs Rollover
Roth IRA Conversion Rules
There are a number of rules that govern a traditional IRA to Roth IRA conversion. Before you proceed with a conversion, it’s important to understand what’s involved. Roth IRA conversion rules include:
Taxes
An individual pays taxes on a traditional IRA or 401(k) before they convert it to a Roth IRA. This includes the tax-deductible contributions they’ve made to the account as well as the tax-deferred earnings. They will be taxed as ordinary income in the year that the conversion is done. Because this money is considered additional income, they could put the individual into a higher marginal tax bracket. The person will need to make sure they have the money on hand to pay the taxes.
Limits
There is no limit to the number or size of Roth IRA conversions an individual can make. They might want to convert smaller amounts of money into a Roth IRA over a period of several years to help manage the amount of taxes they’ll need to pay in one year, for example.
And while Roth IRAs have annual contribution limits (in 2026, you can contribute up to $7,500 or $8,600 if you’re 50 or older), there is no limit on IRA conversion amounts.
Withdrawals
The qualified withdrawals made from a Roth IRA are tax-free. However, with a Roth conversion, if you are under age 59 ½, you will need to wait at least five years before withdrawing the money or you’ll be subject to a 10% early withdrawal penalty (more on that below).
Backdoor Roth IRAs
An option to potentially consider for those who earn too much money to otherwise be eligible for a Roth IRA is a Roth IRA conversion done through a process known as a backdoor Roth IRA. Roth IRAs have contribution phase-out ranges, and individuals whose modified adjusted gross income (MAGI) exceeds those limits cannot contribute to a Roth fully or at all, depending on their income.
For 2026, the ability to contribute to a Roth IRA for those who are married and filing jointly begins to phase out at a MAGI of $242,000, and it’s eliminated completely at $252,000. For single filers, the contribution phase-out begins at $153,000 and is eliminated at $168,000.
With a backdoor IRA, the Roth IRA income phase-out rules don’t apply. To execute it, an individual opens a traditional IRA and makes non-deductible contributions to it, and then they can convert the traditional IRA to a Roth IRA (however, they will owe taxes on any profits they earned).
5-Year Rule
According to the 5-year rule, if an individual is under age 59 ½, the funds that they convert to a Roth IRA must remain in their account for at least five years or they could be subject to a 10% early withdrawal penalty.
The five years start at the beginning of the calendar year in which the individual does the conversion. So even if they don’t open an IRA and do the conversion until, say, December 2026, the five years still begin in January 2026. That means they could withdraw their funds in January 2031.
Also, be aware that if separate Roth IRA conversions are completed in different years, the 5-year rule would apply to each of them.
How To Execute an IRA to Roth Conversion
To do a Roth IRA conversion, it’s important to first consider the tax implications to avoid potentially getting hit with a high tax bill. Here are the general steps involved.
1. Evaluate Your Current Tax Bracket
When doing a Roth conversion, you’ll pay tax on the money you convert, but the specific amount of tax you’ll pay depends on your marginal tax rate. Check to see what tax bracket you’re currently in, depending on your income and filing status, to give you a point of reference
2. Calculate the Expected Conversion Taxes
Next, you can do some calculations to see if the funds you’re converting will push you into a higher tax bracket.
First, look at your current taxable income (including wages and investment income). Then add the conversion amount to it and see what your new total income is. Calculate the tax on the portion of the conversion that falls within your regular tax bracket at the corresponding rate. Then, calculate the amount that puts you in a higher bracket at the higher tax rate. Add the taxes from both brackets to get the total amount of taxes you’ll likely owe on the conversion.
3. Decide How To Pay the Tax Bill
Once you know how much you’ll generally owe in taxes, you can decide on a conversion strategy. For example, you might want to split the conversion into multiple conversions of smaller amounts over several years, rather than one big conversion in one year, to help manage the taxes owed.
Additionally, if you expect your income to be lower in a certain year, you might want to convert a larger amount in that year.
Next, set aside money to cover the taxes you’ll owe on the conversion. It’s generally wise to keep these funds in a separate account.
Because tax rules involved with converting an IRA can be complex, you may want to consult a tax professional.
4. Complete the Fund Transfer
Finally, make the conversion. A trustee-to-trustee transfer is typically easiest and most direct, if possible. Request that the transaction be coded as a Roth conversion rather than a rollover or distribution. Pay the taxes you owe separately.
Is Converting to a Roth IRA Right for You?
Doing a Roth IRA conversion means paying taxes now on the funds you are converting in order to withdraw money tax-free in retirement. Here are some reasons for and against a Roth conversion to consider as you’re deciding whether converting a Roth IRA may be right for you
Reasons For
If you anticipate being in a higher tax bracket in retirement than you’re in now, a Roth IRA conversion may make sense for you. That’s because you’ll pay taxes on the money now at a lower rate, rather than paying them in retirement, when you expect your tax rate will be higher.
In addition, with a Roth IRA, you won’t have to take required minimum distributions (RMDs) every year starting at age 73 as you would with a traditional IRA. Instead, the money can stay in the account — where it may continue to grow — until it’s actually needed.
If your income is too high for you to be eligible for a Roth IRA, a Roth IRA conversion might be beneficial through a backdoor IRA. You will need to put your funds into a traditional IRA first and pay the taxes on them.
Finally, if you won’t need the funds in your Roth IRA for at least five years, a conversion may also be worth considering as part of your retirement planning.
Reasons Against
A Roth IRA conversion may not be the best fit for those who are nearing retirement and need their retirement savings to live on. In this case, you might not be able to recoup the taxes you’d need to pay for doing the conversion.
Additionally, if you receive Social Security or Medicare benefits, a Roth IRA conversion would typically increase your taxable income, which may increase the taxes you pay on Social Security. The cost of your Medicare benefits might also increase.
Those who don’t have the money readily available to pay the taxes required by the conversion should also think twice about an IRA conversion.
And if you expect to be in a lower tax bracket in retirement, a conversion also probably doesn’t make sense for you.
Finally, if you think you might need to withdraw funds from your account within five years, and you’re under age 59 ½, you could be subject to an early withdrawal penalty if you convert to a Roth IRA.
The Takeaway
A Roth IRA conversion may help individuals save on taxes because they can make qualified withdrawals tax-free withdrawals in retirement. For those who expect to be in a higher tax bracket in retirement, a Roth IRA may be worth considering.
It’s important to be aware of the trade-offs involved, however, especially the amount of taxes you might have to pay in order to do the conversion. Making the right decisions now may help you reach your financial goals as you plan and save for retirement.
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FAQ
What is the deadline to complete a Roth conversion for the tax year?
The deadline for a Roth IRA conversion is December 31 of the year you’re doing the conversion.
How does the pro-rata rule affect my tax liability?
If you have any IRA accounts with pre-tax dollars in them, such as a traditional IRA, the pro-rata rule can impact the amount of a Roth IRA conversion that’s considered taxable. Under the pro-rata rule, a Roth IRA conversion is taxed by the IRS based on the ratio of pre-tax to after-tax dollars across all your traditional IRAs (including SEP IRAs) combined.
Do Roth conversions count towards annual contribution limits?
No, Roth IRA conversions do not count toward annual IRA contribution limits. An individual can still make the maximum annual contribution to an IRA in the same year they do a Roth IRA conversion.
Can I convert an inherited traditional IRA to a Roth IRA?
It depends on your relationship to the original account holder. A spouse that inherits a traditional IRA has the option to convert it to a Roth IRA if they choose to do so. However, non-spouse beneficiaries, including children and other family members, are prohibited by the IRS from converting inherited traditional IRAs to Roth IRAs.
Can I undo a Roth conversion if my portfolio loses value?
No, Roth conversions can no longer be undone, even if a portfolio loses value. It was once possible to reverse (or “recharacterize”) a Roth conversion, but under the Tax Cuts and Jobs Act of 2017, Roth conversions are no longer allowed.
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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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