Your Top Roth Conversion Tax Questions, Answered

Roth conversions can dramatically reduce your retirement tax burden, but the conversion itself creates a tax event most people underestimate. Roth conversions are taxed in the year of conversion at your federal income tax rate, which makes it important to plan the conversion for a year when you are in a low tax bracket.

In July of 2025, the Tax Cuts and Jobs Act (TCJA) income tax rates were made permanent under the One Big Beautiful Bill Act (OBBBA). The window for strategic planning is open, and the questions below are the ones every investor should have answered before finalizing their Roth conversion strategy. Whether you’re just starting to explore a conversion or are ready to act, here’s what you need to know.

What Is a Roth IRA Conversion?

A Roth IRA conversion is moving funds from a tax-deferred account (such as a traditional IRA or 401(k)) into a Roth IRA—a retirement account that offers tax-free growth and tax-free withdrawals after age 59½ when the account has been open for more than 5 years.

In traditional accounts, taxes are paid on withdrawal, but in a Roth account, taxes are paid at the time of conversion and withdrawals are tax-free. A Roth conversion is not considered a contribution, so no income limits apply. Partial conversions are allowed, so money does not need to be transferred all at once.

Conversions may be especially useful for high earners who are unable to directly contribute to their Roth IRA but still want to grow funds. By using the backdoor Roth strategy, high earners can convert funds from a traditional IRA to a Roth IRA without penalty.

Roth IRA vs. Traditional IRA: The Core Trade-Off

• Traditional IRA: Tax deduction now; taxable withdrawals later
• Roth IRA: No deduction now; tax-free qualified withdrawals later
• Conversion: Pay taxes today on the converted amount; tax-free growth and withdrawals from that point

How Is a Roth IRA Conversion Taxed?

When you convert funds into a Roth IRA, the amount is treated as ordinary income in the year of conversion. The amount is added to your gross income for that year and can push you into a higher tax bracket.

Conversions are subject to:

• Your marginal federal income tax rate
• State income taxes when applicable

For example, a $60,000 conversion in the 22% federal bracket means you would owe $13,200 in federal income taxes plus any applicable state income tax.

What If My IRA Has After-Tax Nondeductible Contributions?

The pro-rata rule for IRA conversions means you cannot cherry-pick and convert only after-tax dollars. If your traditional IRA has both after-tax and pre-tax contributions, the IRS treats them as one pool. The taxable percentage is proportional to pre-tax vs after-tax funds. If all traditional IRA contributions were pre-tax, the entire conversion would be taxable.

IRS Form 8606 can help you track conversions, distributions, and what your tax rate may be.

How Should You Pay the Roth Conversion Tax Bill?

Paying with your non-retirement savings allows the full converted balance to keep working for you in the Roth account. Let’s say you’re over 59 ½ and you want to convert $60,000 to a Roth IRA, but are unsure how to pay your taxes:

• Scenario A: You use IRA funds to pay $13,200 in taxes, so only $46,800 goes into your Roth. At a 7% gain, you will have roughly $129,000 after 15 years.
• Scenario B: You use funds from your savings to pay $13,200 in taxes, so $60,000 goes into your Roth. At a 7% gain, you will have roughly $165,000 after 15 years.

By paying with a savings account, your Roth balance could be roughly $36,000 after 15 years because the full $60,000 remained invested in the Roth account.

If you’re under the age of 59 1/2, using IRS funds to pay the tax may trigger an extra 10% early withdrawal penalty, unless you qualify for an exception.

What Is the Roth Conversion 5-Year Rule?

If you’re under the age of 59 ½, your Roth conversions have a 5-year holding period. If you withdraw from your Roth IRA before the five years have passed, you will owe the 10% early withdrawal penalty.

The five years start January 1 of the year you made the conversion, regardless of what month it occurred. For example: A conversion made on December 15, 2026, will become “seasoned” on January 1, 2031.

Practically, you’re under the age of 59 ½, and you might need your conversion funds within five years; pause before converting.

The 5-Year Rule vs. Roth IRA Earnings

The conversion 5-year rule governs converted principal, but a separate 5-year rule governs earnings. A Roth IRA must be open for at least 5 years before qualified distributions are tax-free, regardless of age.

The conversion rule and the earnings rule have two different clocks, but a qualified tax advisor can help you track both.

What Other Tax Issues Can a Roth Conversion Trigger?

A Roth conversion doesn’t exist in a vacuum. It raises your Modified Adjusted Gross Income (MAGI) for the year, which can have cascading effects beyond your income tax bill.

Your MAGI can affect:

• Medicare premium surcharges. If conversion income pushes your MAGI above certain thresholds, your Medicare premiums can increase. For the year 2026, Medicare’s Income‑Related Monthly Adjustment Amount (IRMAA) surcharge applies if your 2024 MAGI is above $106,000. If you’re married filing jointly, a surcharge begins when your 2024 MAGI is above $212,000. The IRMAA is based on a 2-year “lookback,” so 2026 premiums are based on your MAGI from 2024.
• Social Security benefit taxation. Conversion income is included in the “combined income” calculation that determines whether your Social Security benefits are taxed. If you’re single and make above $25,000 or if you’re married filing jointly and making above $32,000, a portion of your Social Security benefits are taxable.
• Capital gains rate and net investment income tax. Conversion income can push your total income above the threshold for higher long-term capital gains rates.

When Should You Not Do a Roth Conversion?

A Roth conversion isn’t right for everyone. Consider waiting, or skipping entirely, if:

• You’re in a higher tax bracket now than you expect to be in retirement.
• You’ll need the converted money within 5 years and are under age 59 ½.
• You can’t pay the tax bill from non-retirement savings.
• You’re approaching an IRMAA threshold.
• Your IRA will be inherited by a charity.
• You’re in the midst of a high-income year.

When Is the Best Time to Do a Roth Conversion?

Why 2025 Legislation Still Matters and Why Conversions Still Make Sense

The OBBBA made the TCJA’s income tax brackets permanent, so the 2025 “sunset” that prompted urgency in earlier years did not happen. However, tax law is subject to change, and future rate changes remain possible.

Prime conversion windows to look for:

• Low-income gap years: Early retirement before Social Security begins, career gaps, or partial retirement can be ideal times to make a conversion.
• Years before RMDs begin: Converting before Required Minimum Distributions begin may help reduce the amount of taxable income you are required to take later.
• Market downturns: Converting at lower account values means paying tax on a smaller amount while future gains accrue tax-free.
• Partial conversions “filling the bracket”: Convert only enough each year to stay within your current tax bracket, reducing the tax hit while gradually building Roth assets.
• December 31 deadline: All conversions must be complete by year-end to count for that tax year.

When Is the Best Time to Do a Roth Conversion?

A Roth IRA conversion can be one of the most powerful tools in your retirement planning arsenal, but it’s also one of the most consequential tax decisions you’ll make. The right conversion strategy depends on your current and projected income, your age, your retirement income, and your goals.

If you’re unsure how Roth conversions fit into your financial plan, talk with a specialist at Wealth Enhancement today.

Frequently Asked Questions About Roth IRA Conversion Taxes

Do I Need to Report a Roth IRA Conversion on My Taxes?

Yes. Your IRA custodian will send you a Form 1099-R showing the distribution from your traditional IRA. You must also file Form 8606 to report the conversion and determine the taxable amount. Failing to file Form 8606 can result in the IRS treating the full conversion as taxable even if part of it was after-tax.

Can I Undo a Roth IRA Conversion?

No. Roth IRA conversions are irrevocable due to the 2018 Tax Cuts and Jobs Act. Once you convert, the decision is final.

Is There a Limit on How Much I Can Convert to a Roth IRA?

No, there is no annual dollar limit on Roth conversions. You can convert any amount at any time. However, the converted amount is added to your taxable income for that year, so converting a large amount in a single year could push you into a higher bracket. Many advisors recommend “bracket-filling” partial conversions over several years.

Can I Convert My 401(k) Directly to a Roth IRA?

Yes. You can roll a traditional 401 (k) directly to a Roth IRA, typically upon leaving an employer or retiring. Some employer plans also allow “in-plan” Roth conversions while you’re still working, if the plan permits it.

How Does a Roth Conversion Affect Estate Planning?

Roth IRAs have no Required Minimum Distributions (RMDs) during the original owner’s lifetime, allowing the account to compound tax-free for longer. Assets passed to theirs through a Roth IRA can continue to grow tax-free, and qualified withdrawals by beneficiaries are also tax-free, making Roth accounts particularly valuable for those focused on leaving a tax-efficient inheritance.

Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment advisor and affiliate of Wealth Enhancement Group®.

This information is not intended to provide individualized tax or legal advice. Discuss your specific situation with a qualified tax or legal professional.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

Any examples provided are hypothetical, are for illustrative purposes only, and do not represent actual investment results. Future investment performance cannot be guaranteed. This article was originally published on 7/29/2020 and has been updated.

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