Converting a Traditional IRA to a Roth: The Steps and Tax Consequences

How a Roth conversion works

A Roth conversion means moving money from a traditional IRA (or SEP-IRA or SIMPLE IRA) into a Roth IRA. You withdraw the funds from the traditional account and deposit them into the Roth within 60 days. The IRS treats this as a taxable event in the year you convert — you owe income tax on the amount you move, calculated at your ordinary tax rate.

The appeal is straightforward: once the money sits in the Roth, it grows tax-free. Withdrawals in retirement are tax-free too, as long as the account has been open for at least five years and you are 59½ or older (with some exceptions). A traditional IRA forces you to take required minimum distributions starting at age 73, but a Roth does not. If you expect to be in a higher tax bracket later, or you want to leave money to heirs tax-free, converting now at a lower rate can make sense.

Key Takeaways

• You convert by withdrawing from a traditional IRA and depositing into a Roth within 60 days; the IRS taxes the full amount you move at your ordinary income tax rate in that year.
• If you have pre-tax and after-tax money in traditional IRAs, the IRS applies a "pro-rata rule" that taxes a portion of every conversion based on your total pre-tax balance across all traditional IRAs.
• You must report the conversion on Form 8606 when you file your tax return; failing to file this form can result in the IRS treating the withdrawal as a regular distribution and taxing it twice.
• A backdoor Roth is a conversion strategy for high earners who cannot contribute directly to a Roth because their income exceeds the limit; it involves contributing to a traditional IRA and converting immediately.
• Conversions can trigger Medicare premium increases in the year you convert and the following year, because the IRS counts conversion income when calculating your Medicare Part B and Part D costs.

The pro-rata rule and why it matters

The pro-rata rule is the most common trap in conversions. If you have both pre-tax money (deductible contributions, employer rollovers, or earnings) and after-tax money (non-deductible contributions) across all your traditional IRAs, SEP-IRAs, and SIMPLE IRAs, the IRS does not let you convert only the after-tax portion. Instead, every dollar you convert is treated as a proportional mix of pre-tax and after-tax funds.

Here is a concrete example: suppose you have three traditional IRAs. One holds $50,000 in pre-tax money from a 401(k) rollover. Another holds $10,000 in after-tax money from non-deductible contributions. A third is empty. Your total pre-tax balance is $50,000; your total after-tax balance is $10,000. If you convert $10,000, the IRS calculates the ratio: $50,000 pre-tax out of $60,000 total means 83.3% of your conversion is taxable. You owe tax on $8,333 of the $10,000 you moved, even though you intended to convert only after-tax money.

The pro-rata rule applies across all IRAs you own, not account by account. Many people try to work around this by rolling pre-tax money into a 401(k) at their current employer (if the plan allows it), which removes it from the IRA universe and resets the calculation. If you are considering a conversion and you have pre-tax IRAs, check with a tax professional before you move any money.

Filing Form 8606 and avoiding double taxation

You must report every Roth conversion on Form 8606 (Nondeductible IRAs) when you file your federal tax return for the year of the conversion. This form tells the IRS how much you converted, how much was taxable, and how much was after-tax basis. If you do not file Form 8606, the IRS may treat the withdrawal as a regular distribution and tax it again when you withdraw it from the Roth later, even though you already paid tax on the conversion.

Form 8606 is filed with your 1040. If you use tax software, it usually prompts you to enter conversion details and generates the form automatically. If you work with a tax preparer, give them the confirmation statement from your IRA custodian showing the amount converted and the date. Keep copies of Form 8606 and the custodian's statement in your records for as long as you own the Roth.

If you discover you did not file Form 8606 in a prior year, you can file an amended return (Form 1040-X) for that year. The IRS has procedures to waive the penalty for late filing if you have reasonable cause, though this requires a written request.

The backdoor Roth strategy for high earners

If your income exceeds the limit for direct Roth contributions, a backdoor Roth lets you contribute indirectly through a conversion. For 2024, you cannot contribute directly to a Roth if your modified adjusted gross income (MAGI) is above $146,000 (single) or $230,000 (married filing jointly); these limits change each year.

The backdoor process is simple in structure but requires careful timing. You contribute money to a traditional IRA (which has no income limit), then immediately convert it to a Roth. Because the contribution was after-tax and has not earned anything yet, the conversion is tax-free. You report both the contribution and the conversion on Form 8606.

The catch is the pro-rata rule again. If you have any pre-tax IRAs when you do a backdoor Roth, the conversion is partially taxable. Many people do a backdoor Roth every year for several years without realizing they have accumulated pre-tax IRA balances that will trigger the pro-rata rule. Before you start a backdoor Roth strategy, make sure you have no pre-tax IRAs, or roll any pre-tax balances into your 401(k) first.

Timing and the 60-day rollover window

You have 60 days from the date you withdraw money from a traditional IRA to deposit it into a Roth. The IRS counts calendar days, not business days. If you miss the 60-day deadline, the withdrawal is treated as a regular distribution and is not converted — you owe income tax on it anyway, and you have lost the opportunity to move that money to the Roth.

The 60-day clock starts the day your IRA custodian releases the funds to you, not the day you request the withdrawal. If you request a check and it takes three days to arrive, those three days count toward your 60 days. Many people use a direct transfer instead: you instruct your traditional IRA custodian to send the money directly to your Roth IRA custodian. A direct transfer is not subject to the 60-day rule and avoids the risk of missing the deadline.

You can do only one rollover per IRA per 12-month period. This rule applies to rollovers between IRAs of the same type (traditional to traditional, Roth to Roth). Conversions (traditional to Roth) are not subject to this limit, so you can do multiple conversions in one year.

Tax consequences in the year of conversion

The year you convert, you owe federal income tax on the taxable portion of the conversion at your ordinary income tax rate. If you convert $50,000 and $40,000 is taxable, you add $40,000 to your taxable income for that year. This can push you into a higher tax bracket and increase your overall tax bill.

Some people spread conversions over multiple years to stay in a lower bracket. Others do a large conversion in a year when their income is unusually low — for example, after a job loss or retirement, or in a year when they have large capital losses to offset gains. There is no rule against doing multiple conversions in one year, but the tax impact is immediate.

Conversions can also trigger the net investment income tax (3.8% surtax) if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly). The conversion income counts toward this threshold.

Medicare premiums and the two-year lookback

If you are on Medicare, a Roth conversion can increase your Part B and Part D premiums. Medicare uses a "modified adjusted gross income" figure from your tax return to set your premiums, and it looks back two years. If you convert in 2024, Medicare uses your 2022 income to set your 2024 premiums. But if your 2024 conversion pushes your 2024 income higher, that affects your 2025 and 2026 premiums.

You can file Form SSA-44 with Social Security to request a recalculation if your income has changed significantly since the lookback year. Conversions are one of the few life events that Social Security recognizes as a reason to recalculate, but you must request it within the same year or the year after the change occurs.

If you are approaching Medicare age and considering a conversion, factor in the premium impact. A conversion that saves you $5,000 in future taxes might cost you $2,000 more in Medicare premiums over two years, narrowing the benefit.

Frequently Asked Questions

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

You can recharacterize a conversion — move the money back to a traditional IRA — but only if you do it by the tax filing deadline (usually October 15 of the following year, including extensions). You must file Form 8606 to report the recharacterization. After that deadline, the conversion is permanent and you cannot undo it, even if the market drops and the conversion becomes a bad deal.

What happens if I convert and then withdraw from the Roth before five years?

Roth conversions have their own five-year clock separate from contributions. If you convert in 2024 and withdraw before 2029, you owe a 10% penalty on the taxable portion of the conversion (unless you are 59½ or meet another exception). The after-tax portion you converted can always be withdrawn penalty-free. Earnings are subject to the penalty and income tax.

Do I have to convert all my traditional IRAs at once?

No. You can convert one IRA, some IRAs, or all of them. Each conversion is reported separately on Form 8606. However, the pro-rata rule still applies across all your traditional IRAs combined, so converting one does not avoid the rule if you have pre-tax money in others.

What if my employer offers a Roth 401(k) — is that the same as a Roth conversion?

No. A Roth 401(k) is a direct contribution to your employer plan, not a conversion. You contribute after-tax dollars and the money grows tax-free. When you leave the job, you can roll a Roth 401(k) into a Roth IRA. A conversion is different: it moves money from a traditional account to a Roth and triggers a tax bill in the year you move it.

Can I convert if I am still working and have a 401(k)?

Yes. Your employment status and 401(k) balance do not prevent you from converting a traditional IRA to a Roth. However, if you have pre-tax money in both a traditional IRA and a 401(k), the pro-rata rule applies only to the IRA conversion, not the 401(k). Some people roll their 401(k) into a traditional IRA before converting, which can trigger the pro-rata rule, so check with a tax professional first.