Roth IRA Conversion Rules

An account owner can generally convert eligible amounts from their own Traditional, SEP or eligible SIMPLE IRA at any age and income. There is no annual statutory conversion cap, but an RMD cannot be converted and a nonspouse beneficiary cannot convert an inherited IRA. The taxable portion is included in conversion-year income; future qualified Roth distributions can be tax-free. Since 2018, conversions cannot be undone through recharacterization.

What Is a Roth Conversion?

A Roth conversion moves eligible retirement money into a Roth account. The taxable portion loses its pre-tax status and is included in income for the conversion year; future qualified Roth distributions can then be tax-free.

The most common conversion is Traditional IRA to Roth IRA. But conversions can also happen from:

• SEP IRA to Roth IRA — if you're self-employed and have a SEP, you can convert.
• SIMPLE IRA to Roth IRA — generally available only after the SIMPLE IRA's two-year participation period. During that period, a SIMPLE distribution generally cannot roll to a non-SIMPLE IRA, and a non-exempt early distribution can face a 25% additional tax.
• 401(k), 403(b), or eligible governmental 457(b) to Roth IRA — available only when the amount is eligible for distribution and rollover under the plan's terms, such as after separation from service or through a permitted in-service distribution.
• Employer plan to its designated Roth account — available only if the plan permits an in-plan Roth rollover of the eligible amount. A plan's Roth contribution option alone does not establish that rollover feature.

Why Convert? The Tax Rate Arbitrage

A lower current marginal rate than the rate expected on later Traditional IRA withdrawals can make a conversion more attractive, but it does not guarantee lifetime savings. Compare the incremental all-in cost now—including credits, IRMAA, ACA effects and state tax—with the timing and tax treatment of expected future withdrawals.

Consider a 55-year-old who retires before claiming Social Security. A low-income year may let that person convert fully pretax Traditional IRA dollars through lower brackets than would apply after pensions, Social Security, RMDs or other income begins. The comparison must be modeled on the incremental tax caused by the conversion now versus the expected tax on later Traditional IRA withdrawals; neither rate is known from age alone.

For high earners expecting to maintain or increase income into retirement, or for legacy planning (passing tax-free wealth to heirs), conversions also serve strategic purposes beyond simple tax-rate matching.

No Income Limit or Annual Statutory Conversion Cap

Unlike direct Roth IRA contributions, Roth conversions have no income limit. Since 2010, a taxpayer whose income prevents a direct Roth contribution may still be eligible to make a nondeductible Traditional IRA contribution and later convert eligible dollars. The annual IRA contribution limit and compensation requirement still apply to the contribution step.

Conversions have no annual statutory dollar cap. The amount actually available depends on the eligible balance and, for employer-plan assets, the plan's distribution and in-plan Roth rollover terms.

This is a major difference from contribution limits, which cap you at $8,600 annually (age 50+) or $7,500 (under 50) in 2026. Conversions can move more eligible money into Roth treatment, where qualified distributions—including earnings—can be federally tax-free.

How Conversions Are Taxed

A Roth conversion is reported as an IRA distribution, but the gross amount converted is not automatically the taxable amount. Pretax dollars and gains are generally taxable; documented after-tax basis is allocated under Form 8606 across the owner’s aggregated Traditional, SEP and SIMPLE IRA pool. The conversion-year December 31 value and relevant same-year distributions and conversions affect that allocation.

The custodian generally reports the gross distribution on Form 1099-R. Form 8606 then determines the nontaxable and taxable portions when Traditional IRA basis is present. Moving the money directly between custodians avoids receiving it personally, but it does not change the federal income inclusion that applies to the taxable portion.

Example: Tax Impact of a $30,000 Conversion

Assume you are single, have $40,000 of AGI before the conversion, take the 2026 $16,100 standard deduction, and convert $30,000 of fully pretax Traditional IRA money with no withholding or other adjustments. Taxable income rises from $23,900 to $53,900. The conversion fills the rest of the 12% bracket and reaches the 22% bracket (the 2026 single 22% bracket begins at $50,400):

• First $26,500 of conversion taxed at 12% = $3,180
• Next $3,500 of conversion taxed at 22% = $770
• Modeled incremental federal income tax from the conversion: $3,950 (about 13.2% of the $30,000)

With no withholding, the full $30,000 reaches the Roth; paying the modeled tax from outside funds does not reduce that converted amount. If the Roth value later doubles to $60,000, the $30,000 gain can be federally tax-free when the distribution satisfies the Roth IRA qualified-distribution rules.

Conversions Are Permanent (No Recharacterization)

Before 2018, you could convert a Traditional IRA to Roth, then recharacterize it back if you changed your mind or if the market declined and you wanted to avoid the conversion's tax bill. This was called a "do-over" strategy.

The Tax Cuts and Jobs Act of 2017 eliminated recharacterization of conversions effective January 1, 2018. Now, conversions are permanent. Once you convert, you cannot undo it.

This has significant planning implications: before converting, carefully consider whether you can afford the tax bill and whether the conversion aligns with your long-term strategy. Conversions are not timing plays anymore—they're strategic decisions with permanence.

Note: Recharacterization of contributions (not conversions) is still allowed. You can recharacterize a Roth contribution as Traditional (or vice versa) before the tax filing deadline. See Contribution Rules for details.

The Pro-Rata Rule and Embedded Tax Liability

Here's where conversions get complicated: Form 8606 treats all of one owner's Traditional, SEP, and SIMPLE IRAs as a single annual pool. If that pool contains pre-tax and after-tax money, basis is allocated proportionally. The denominator includes the conversion-year December 31 value plus relevant same-year distributions and conversions.

This is called the pro-rata rule, and it's one of the biggest conversion gotchas.

How the Pro-Rata Rule Works

Assume you have three accounts totaling $100,000 before a $5,000 conversion, no other IRA transactions or gains, and a $95,000 combined December 31 balance:

• Traditional IRA: $80,000 (pre-tax)
• SIMPLE IRA: $15,000 (pre-tax)
• After-tax (non-deductible) contribution: $5,000
• Total IRA universe: $100,000 (95% pre-tax, 5% after-tax)

Account labels do not let the owner select only the $5,000 of basis. Under the annual Form 8606 allocation, 95% of the modeled conversion is pretax and 5% is after-tax.

If you convert $5,000, $4,750 is taxable in this simplified example. Mixed basis and pretax IRA dollars do not bar a conversion; they require the annual allocation and can make part of a backdoor conversion taxable.

For a detailed breakdown of the pro-rata rule and strategies to minimize it, see Pro-Rata Rule Guide.

The 5-Year Rule for Conversion Withdrawals

A conversion completed before age 59½ has its own 5-tax-year recapture period, beginning January 1 of the conversion year. If conversion dollars are distributed while the owner is still under 59½ and before that period ends, the 10% additional tax generally applies only to the portion that was taxable when converted, unless a separate penalty exception applies. The nontaxable converted portion is not subject to this conversion recapture tax.

Example: You convert $50,000 in 2026: $40,000 was taxable and $10,000 came from documented basis. That conversion's period runs from January 1, 2026 through December 31, 2030. Assume your regular Roth IRA contributions have already been withdrawn and this conversion is next under the ordering rules. If you withdraw the full $50,000 in 2029 while under 59½ and no exception applies, the additional tax is 10% of the $40,000 taxable portion ($4,000), not 10% of the full conversion. The $10,000 nontaxable portion is not subject to this recapture tax.

Roth IRA ordering rules still control what leaves the account: regular contributions first; then conversions on a first-in, first-out basis, with the taxable portion of each conversion before its nontaxable portion; and earnings last.

Earnings do not use a separate conversion clock. They follow the qualified-distribution rules and the owner's single Roth IRA 5-tax-year period, which begins with the first tax year for which the owner made any Roth IRA contribution, including a conversion. A distribution of earnings also needs a qualifying condition, such as reaching age 59½, to be tax-free; otherwise earnings may be taxable and may face the 10% additional tax unless an exception applies.

Once the age-59½ exception applies, the conversion recapture tax no longer applies. The separate qualified-distribution rules still determine whether earnings are tax-free.

For more details, see 5-Year Rule for Conversions.

Should You Convert? A Decision Framework

Bracket Filling: Maximizing the Conversion Window

A sophisticated conversion tactic is "bracket filling"—converting just enough to fill up your current tax bracket without moving into a higher one.

Example: You're single, have $30,000 in income, and the 12% bracket for single filers goes up to $50,400 in 2026 (per Rev. Proc. 2025-32). After the $16,100 standard deduction, your taxable income is $13,900, leaving $36,500 of room in the 12% bracket. Instead of converting $100,000, convert $36,500. You pay 12% tax on the entire conversion, minimize bracket creep, and still move money to Roth.

The math: $36,500 × 12% = $4,380 in taxes. If that $36,500 grows to $73,000 over 20 years, you've paid $4,380 in tax to save roughly $7,300–$10,200 in future taxes (depending on your future bracket).

This strategy requires knowing your exact tax bracket and remaining room, which is why working with a tax professional during conversion years is valuable.

Medicare IRMAA Impact: The Hidden Cost of Conversions

A taxable conversion increases the AGI used in IRMAA MAGI and can increase Medicare Part B and Part D premiums if the added income crosses a tier.

The key: IRMAA generally uses MAGI from two years prior. So a conversion in 2026 generally affects Medicare premiums in 2028. The 2028 thresholds and monthly adjustments are not yet published; the table below is the official 2026 table, using 2024 MAGI.

IRMAA Thresholds (2026)

Medicare Part B IRMAA surcharges kick in above certain MAGI levels. The 2026 brackets (based on your 2024 MAGI), per CMS and the SSA sliding scale (POMS HI 01101.020, effective December 2025):

Part D (prescription drug) surcharges use the same MAGI bands and are added on top of the person's plan premium. For 2026, Part D IRMAA ranges from $14.50 to $91.00 per month. The Part B and Part D adjustments are each assessed per enrolled person.

Under this published table, a single filer moving from $80,000 to $180,000 of IRMAA MAGI goes from the standard tier to level 3. For one person enrolled in both Parts B and D for the full year, the added amount is ($324.60 + $60.40) × 12 = $4,620. A one-time high-income tax year generally maps to one later premium year.

Use the IRMAA Trap Detector for filing-status, tax-exempt-interest, enrollment and future-table assumptions.

How to Pay Conversion Taxes: Critical Mistake to Avoid

Suppose you request a $100,000 Roth conversion and, after any Form 8606 basis allocation, the full amount is taxable. The tax still depends on the rest of the return. A separate operational choice is whether to request federal or state withholding from the IRA distribution.

Paying the resulting tax from outside funds lets the full $100,000 reach the Roth. Withholding may help cover estimated-tax obligations, but it leaves less in the Roth and can create an additional-tax issue for someone under age 59½.

If the custodian withholds $20,000 from that fully taxable $100,000 distribution:

1. Only $80,000 reaches the Roth. The $20,000 is remitted as tax withholding, which is a payment toward the return’s eventual liability—not a reduction in the gross distribution.
2. The withheld portion is not converted. It is treated as distributed to you. If you are under age 59½, the taxable amount kept outside the Roth can face the 10% additional tax unless an exception applies.
3. Your Roth ends up smaller. If you convert $100,000 but withhold $20,000, your Roth gets $80,000 instead of $100,000. Over 20 years, that $20,000 difference compounds—at 7% growth, it becomes $77,000 you could have had.

State Tax Implications

Federally, the previously untaxed portion of a conversion is generally included in income; documented Traditional IRA basis can make part nontaxable. State treatment is not uniform.

Some states have no broad individual income tax, some conform to federal taxable income, and others exclude some or all qualifying retirement distributions or conversions. Age, plan type, distribution form and domicile can change the result. A move does not change tax residence merely because a mailing address changes, so verify the conversion-year rule with the applicable state revenue agency before relying on a state-tax estimate.

The Backdoor Roth: Leveraging the No-Income-Limit Rule

The backdoor Roth is a specific conversion strategy for high earners. Because conversions have no income limit, you can:

1. Make an eligible nondeductible Traditional IRA contribution up to unused 2026 IRA room: no more than $7,500 if under 50 or $8,600 if 50+, and no more than qualifying compensation
2. The contribution may be followed by a Roth conversion; federal law sets no minimum waiting period, although custodians may have processing rules
3. Use Form 8606 to determine the taxable amount; gains, basis records, other IRA transactions, and the conversion-year December 31 Traditional/SEP/SIMPLE pool all matter
4. Apply the Roth ordering and qualified-distribution rules to later withdrawals

The contribution and conversion are separate transactions; this is not a direct Roth contribution. If the owner's annual Traditional/SEP/SIMPLE IRA pool contains pre-tax money, the pro-rata rule can make part of the conversion taxable.

For a full breakdown, see Backdoor Roth Guide.

Before Converting Employer Stock: Screen for NUA

If a qualified employer plan holds employer securities, evaluate net unrealized appreciation (NUA) under IRC §402(e)(4) before rolling those shares to an IRA. A qualifying lump-sum distribution can send the shares in kind to a taxable account. The plan’s cost basis is generally ordinary income in the distribution year; the NUA embedded at distribution is generally long-term capital gain when the shares are sold. Post-distribution appreciation is a separate gain with its own holding period. The deferred NUA does not receive a basis step-up at death.

The Transaction Boundary

The entire balance in all of the employer’s plans of the same type generally must be distributed within one tax year after a qualifying event. The other assets can generally move by direct rollover while the employer shares move in kind to the taxable account. Qualifying events include death, reaching age 59½, separation from service for an employee, and disability for a self-employed participant. Prior distributions after a triggering event can complicate eligibility.

Rolling the employer stock into an IRA generally gives up NUA treatment for those shares. Whether NUA, a taxable distribution, an IRA rollover or a Roth conversion produces the better result depends on plan basis, embedded appreciation, ordinary and capital-gain rates, additional taxes, diversification, sale timing and estate plans. IRS Publication 575 gives the federal framework; obtain transaction-specific tax review before directing the shares.

Estimated Tax Rules: Getting the Timing Right on a Conversion Year

A large Roth conversion creates an unusual tax bill that typical wage withholding won't cover. Underpaying triggers a Section 6654 underpayment penalty — not large in dollar terms but irritating in its avoidability.

Safe Harbor Math

Publication 505 generally avoids an underpayment penalty when the amount due after withholding and refundable credits is under $1,000, or when timely payments reach the smaller of 90% of current-year tax or 100% of prior-year tax. The prior-year percentage rises to 110% when prior-year AGI exceeds $150,000 ($75,000 if married filing separately); the prior return must cover 12 months and show tax. Payment timing still matters, so a year-end conversion can require Form 2210’s annualized-income method rather than a simple annual-total comparison.

Timing Within the Year

Estimated taxes are paid quarterly: April 15, June 15, September 15, and January 15 of the following year. The IRS uses an “annualized income installment method” for irregular income: if you convert in December, you can pay all the associated estimated tax with the January 15 (Q4) installment without penalty, provided you file Form 2210 Schedule AI to annualize. Conversely, conversions done earlier in the year require earlier estimated payments proportionally.

Late-Year Withholding Is Not a Free Rollover

Federal withholding is generally treated as paid evenly through the year unless the taxpayer elects to use actual withholding dates on Form 2210. That can make additional late-year wage or pension withholding useful, but manufacturing withholding with an IRA distribution adds rollover risk. To restore the gross IRA distribution within 60 days, the owner must replace the withheld amount with outside cash; redepositing only the net check leaves a taxable distribution. The one-rollover-per-12-month rule can apply, and RMDs, nonspouse inherited-IRA distributions and other ineligible amounts cannot be rolled over. Any taxable amount left outside the IRA can also face the 10% additional tax before age 59½ unless an exception applies. Coordinate a late-year withholding plan with the return’s actual payment history and Form 2210 treatment.

Conversion Strategy for Estate Planning and Heirs

A lifetime conversion can shift income tax from beneficiaries to the owner, but it does not make every inherited-Roth distribution automatically tax-free. Most noneligible designated beneficiaries must empty an inherited Roth IRA by the end of year 10, while eligible designated beneficiaries and non-designated beneficiaries can follow different schedules. No annual distributions are required in years 1–9 for an inherited Roth subject to the 10-year rule.

Qualified inherited-Roth distributions are federally tax-free. If the original owner’s first-Roth five-tax-year period was not complete at death, earnings distributed before that period ends can be taxable even though the beneficiary generally avoids the 10% additional tax. An inherited Traditional IRA is generally taxable as distributed, but documented after-tax basis can make part nontaxable.

The comparison therefore depends on the owner’s conversion tax, payment source, remaining Roth clock, beneficiary category, expected distribution timing, inherited Traditional IRA basis and each beneficiary’s likely tax rate. A conversion can improve an estate plan, but “the owner pays so heirs never do” is not a universal result.