How Roth Conversions Work and When They Make Sense

By Felix Thorpe · Retirement Accounts WriterPublished October 8, 2026

What a Roth conversion is

A Roth conversion is the act of moving money from a traditional IRA, SEP-IRA, SIMPLE IRA, or an old 401(k) into a Roth IRA. You pay income tax on the amount you convert in that tax year, but once the money is in the Roth, it grows tax-free and you can withdraw it tax-free in retirement. The conversion itself is not a loan or a transfer that avoids tax—you owe tax on the full value of what you move, calculated as ordinary income.

The appeal is straightforward: you trade a tax bill today for tax-free growth and withdrawals later. If you believe your tax rate will be higher in retirement than it is now, or if you want to move money into an account with no required withdrawals, a conversion can make sense. If your tax rate is likely to stay the same or drop, the conversion costs you money in taxes without a corresponding benefit.

Key Takeaways

A Roth conversion requires you to pay income tax on the full amount converted in the year you convert it, calculated at your ordinary income tax rate.
You can convert from a traditional IRA, SEP-IRA, SIMPLE IRA, or a 401(k) from a former employer, but not from an active employer 401(k) unless your plan allows in-service conversions.
After conversion, the money grows tax-free in the Roth and can be withdrawn tax-free in retirement, with no required minimum distributions during your lifetime.
The "pro-rata rule" means if you have both pre-tax and after-tax money in traditional IRAs, a conversion treats them proportionally, which can create an unexpected tax bill.
Conversions can trigger higher Medicare premiums and reduce tax credits if you convert in a year when your income matters for those calculations.

Which accounts you can convert from

You can convert from a traditional IRA, SEP-IRA, or SIMPLE IRA at any time. You can also convert from a 401(k), 403(b), or 457 plan from a former employer—but only if you have already left that job. You cannot convert from an active employer plan unless your plan document explicitly allows "in-service conversions," which some plans do and most do not. If you are still working and your current employer's 401(k) is the only account you have, you cannot convert it.

If you have a 401(k) from a previous job, you can roll it into an IRA first and then convert the IRA to a Roth. This two-step process is common and gives you more control over the timing and amount of the conversion.

How the pro-rata rule affects your tax bill

The pro-rata rule is the most common surprise in Roth conversions. If you have both pre-tax money and after-tax money sitting in traditional IRAs, the IRS treats any conversion as coming proportionally from both buckets. This means you cannot convert only the after-tax portion and avoid tax.

Example: You have $80,000 in pre-tax traditional IRA money and $20,000 in after-tax money (contributions you made with no deduction). You want to convert the $20,000 after-tax portion to avoid paying tax on it. The IRS says no—your total is $100,000, so 80 percent of any conversion is treated as pre-tax. If you convert $20,000, the IRS counts $16,000 as pre-tax (taxable) and $4,000 as after-tax (not taxable). You owe tax on $16,000 even though you only wanted to move the after-tax money.

The pro-rata rule applies across all your traditional IRAs, SEP-IRAs, and SIMPLE IRAs combined. It does not apply to 401(k)s, 403(b)s, or 457 plans—those are separate. If you have after-tax money in a 401(k) and want to convert it, rolling it to an IRA first can trigger the pro-rata rule, so some people convert the 401(k) directly to a Roth instead, if their plan allows it.

The tax you owe and when you pay it

When you convert, you owe federal income tax on the full amount converted, calculated at your ordinary income tax rate for that year. If you convert $50,000 and you are in the 24 percent tax bracket, you owe $12,000 in federal tax. You also owe state income tax in most states (though a few states do not tax retirement income).

You do not pay the tax from the conversion itself. Instead, you owe it when you file your tax return for that year. The conversion is reported on Form 8606, which you file with your 1040. You can pay the tax from other money in your bank account, or you can ask your IRA custodian to withhold tax from the conversion amount—though withholding is optional and many people choose not to do it.

The tax bill is due by April 15 of the following year (or October 15 if you file an extension). If you do not pay it by then, you owe penalties and interest on the unpaid amount.

How conversions affect Medicare premiums and tax credits

A Roth conversion increases your taxable income for that year, which can raise your Medicare premiums and reduce tax credits you might otherwise receive. Medicare premiums are based on your Modified Adjusted Gross Income (MAGI) from two years prior. If you convert in 2024, your 2024 income affects your 2026 Medicare premiums.

If you receive the Earned Income Tax Credit, the Child Tax Credit, or the American Opportunity Credit, a conversion can reduce or eliminate those credits by pushing your income above the threshold. If you are on the Affordable Care Act marketplace and receive a premium subsidy, a conversion can increase your premiums or require you to repay some of the subsidy when you file your taxes.

This is why some people convert in years when their income is already low—a sabbatical year, a year of job loss, or early retirement before Social Security begins. The conversion adds to income, but the baseline is lower, so the total tax bill is smaller.

The five-year rule for withdrawals after conversion

After you convert, there is a five-year holding period before you can withdraw the converted amount tax-free. This is separate from the five-year rule that applies to Roth contributions. If you convert $50,000 in 2024, you cannot withdraw that $50,000 without penalty until 2029, even if you are over 59½.

The five-year period starts on January 1 of the year you convert. If you convert in December 2024, the clock starts January 1, 2024. If you convert in January 2025, the clock starts January 1, 2025. If you withdraw before the five years are up, you owe a 10 percent penalty on the amount withdrawn, plus income tax (though the tax is usually zero because you already paid it when you converted).

There is an exception: if you are 59½ or older when you convert, you can withdraw the converted amount immediately without penalty. The five-year rule still applies if you are younger.

When a conversion makes financial sense

A conversion is most useful when your current tax rate is lower than your expected tax rate in retirement. This happens in a few common situations: you took a pay cut or left your job, you are between jobs, you are newly retired and have not yet started Social Security, or you expect tax rates to rise significantly in the future.

A conversion can also make sense if you have a large traditional IRA and want to reduce required minimum distributions (RMDs) later. Roth IRAs have no RMDs during your lifetime, so converting reduces the amount you must withdraw each year after 73, which can lower your taxable income and preserve more money for heirs.

A conversion usually does not make sense if you are in a high tax bracket now and expect to be in a lower bracket in retirement, or if you need the money within five years and cannot afford the tax bill from a separate source.

Frequently Asked Questions

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

No. Before 2018, you could recharacterize a conversion (move the money back to a traditional IRA). That option ended on December 31, 2017. Now, once you convert, the conversion is permanent. You still owe the tax even if the account loses value after the conversion.

What if I convert and then my income is higher than I expected?

You still owe the tax you calculated when you filed your return. If you underestimated and owe more, you pay the additional amount when you file. If you overestimated and paid too much, you get a refund. The conversion itself does not change.

Do I have to convert my entire IRA, or can I convert part of it?

You can convert any amount you want, from a small portion to the entire account. Many people convert in stages over several years to spread the tax bill across multiple years and stay in a lower tax bracket.

What happens to the money after I convert it?

It sits in your Roth IRA and grows tax-free. You can invest it in stocks, bonds, mutual funds, or keep it in cash, just like any other Roth IRA. You do not have to withdraw it at any age during your lifetime.

Does a conversion affect my Social Security benefits?

A conversion increases your income for that year, which can trigger taxation of your Social Security benefits if you are already receiving them. The conversion does not directly reduce your benefit amount, but the extra income can push you into a tax bracket where some of your benefits become taxable.