How to Convert Money Into a Roth IRA
The basic steps to move money from a traditional IRA or workplace plan into a Roth
A Roth conversion means moving money from a traditional IRA, SEP-IRA, SIMPLE IRA, or workplace plan (like a 401(k)) into a Roth IRA. You pay income tax on the amount you convert in the year you do it, but the money then grows tax-free and you can withdraw it tax-free later. The conversion itself is not complicated—you instruct your financial institution to move the money—but the tax bill and timing matter enough that most people benefit from planning it with a tax professional first.
The process differs slightly depending on where the money starts. If you have a traditional IRA, you can ask your IRA custodian (the bank, brokerage, or investment firm holding it) to transfer funds directly to your Roth IRA at the same institution or elsewhere. If the money is in a workplace plan like a 401(k), you typically need to roll it to a traditional IRA first, then convert from there—though some plans allow direct conversions to a Roth. The financial institution handling the conversion does the paperwork; you do not file a separate form with the IRS.
Key Takeaways
- You pay ordinary income tax on the full amount converted in the year you convert it, so the tax bill can be substantial and should be calculated before you move the money.
- There is no income limit on who can do a conversion, but converting can trigger the pro-rata rule if you have other traditional IRAs, which may result in unexpected tax on the conversion.
- You can convert as much or as little as you want in a single year, and you can do multiple conversions across different years.
- If you convert and then change your mind, you can undo the conversion (called a recharacterization) only if you do it before the tax filing deadline for that year, including extensions.
Who can do a Roth conversion and when it makes sense
Anyone with a traditional IRA, SEP-IRA, SIMPLE IRA, or may be able to access workplace plan can convert. Unlike direct contributions to a Roth, there is no income limit—high earners who cannot contribute directly to a Roth often use conversions as a workaround. The decision to convert usually comes down to whether you expect to be in a higher tax bracket later, or whether you want to lock in current tax rates before they rise.
Conversions often make sense if you are recently retired and in a lower tax bracket than you will be when you start taking required distributions, if you expect tax rates to increase, or if you want to reduce the size of your traditional IRA to lower future required minimum distributions. They also make sense if you have a large traditional IRA balance and a low income year (perhaps due to a job loss or sabbatical) when the tax hit is smaller.
Conversions rarely make sense if you cannot pay the tax bill from money outside the IRA—using IRA funds to pay the tax on a conversion defeats much of the purpose. They also become complicated if you have multiple traditional IRAs or a SIMPLE IRA, because of the pro-rata rule (explained below).
Understanding the pro-rata rule and its tax consequences
The pro-rata rule is the most common trap in conversions. If you have any traditional IRAs, SEP-IRAs, or SIMPLE IRAs (collectively called "traditional IRAs" for this rule), the IRS treats all of them as one pool for tax purposes. When you convert, you cannot pick out only the after-tax money and convert it—you must convert a proportional mix of pre-tax and after-tax money.
Here is a concrete example: suppose you have a traditional IRA with $80,000 in pre-tax contributions and $20,000 in after-tax contributions (money you contributed but did not deduct). The total is $100,000. If you convert $25,000, the IRS says 80 percent of it ($20,000) is pre-tax and 20 percent ($5,000) is after-tax. You pay income tax on the $20,000 pre-tax portion. The $5,000 after-tax portion is not taxed again.
This rule applies across all your traditional IRAs combined, even if they are at different institutions. If you have a $500,000 401(k) and a $50,000 traditional IRA with $10,000 of after-tax money, only the traditional IRA counts for the pro-rata calculation—workplace plans are separate. But if you roll the 401(k) into a traditional IRA, then all three pools merge and the pro-rata rule applies to the whole amount.
The conversion process: step by step
The exact steps depend on whether your money is in an IRA or a workplace plan. If it is in a traditional IRA, contact your IRA custodian and ask to convert funds to your Roth IRA. You can specify a dollar amount or a percentage. The custodian will ask whether the Roth is at the same institution or elsewhere; if elsewhere, you will provide the Roth IRA account number and routing information. The custodian handles the transfer and reports it to the IRS on Form 8606.
If the money is in a 401(k) or other workplace plan, check your plan documents or ask your plan administrator whether the plan allows direct conversions to a Roth. If it does, you can convert directly. If not, you must first roll the money to a traditional IRA (a rollover), then convert from the traditional IRA to the Roth. The rollover itself is not taxable; only the conversion triggers the tax bill.
The entire process usually takes one to two weeks. The financial institution will send you a confirmation showing the amount converted and the date. Keep this for your tax records. You do not need to do anything else with the IRS at the time of conversion—the custodian reports it, and you report it on your tax return when you file.
Tax reporting and what happens on your tax return
Your IRA custodian reports the conversion to the IRS on Form 8606 and sends you a copy. You then report the conversion on your own tax return using the same form. Form 8606 calculates how much of the conversion is taxable (taking the pro-rata rule into account) and how much is not. The taxable portion is added to your ordinary income for the year.
The tax bill is due when you file your return for that year. You do not pay it to the IRA custodian; you pay it to the IRS as part of your income tax. If you expect a large conversion to push you into a higher bracket or trigger other tax consequences (like higher Medicare premiums or loss of certain deductions), a tax professional can model the impact before you convert.
If you convert in December, you still have until the tax filing deadline (usually April 15 of the following year, plus extensions) to undo the conversion if you change your mind. This is called a recharacterization. You instruct your Roth IRA custodian to move the money back to a traditional IRA. The conversion is treated as if it never happened, and you owe no tax on it. After the deadline, you cannot undo it.
Converting from a workplace plan directly to a Roth
Some 401(k)s, 403(b)s, and other workplace plans now allow direct Roth conversions without rolling to a traditional IRA first. This bypasses the pro-rata rule entirely—only the money in that specific plan counts toward the conversion, not your other IRAs. If your plan offers this option, it is often the cleaner route.
To find out whether your plan allows direct conversions, ask your plan administrator or check your plan documents. If it does, you can request the conversion through your plan's website or by contacting the plan administrator. The process is similar to a rollover: you specify the amount, provide your Roth IRA account details, and the plan transfers the money directly. The plan reports the conversion to the IRS, and you report it on your tax return.
Direct conversions are especially useful if you have a large traditional IRA with mostly after-tax money, because they let you convert only the workplace plan money without triggering the pro-rata rule on your IRA balance.
What to do if you want to undo a conversion
You can reverse a conversion by recharacterizing it—moving the money back to a traditional IRA—but only before the tax filing deadline for that year, including any extensions you request. If you filed your return and then want to undo a conversion, you must file an amended return (Form 1040-X) and request the recharacterization before the deadline.
Recharacterizations are useful if the market drops after you convert and you want to avoid paying tax on money that is now worth less, or if you convert and then realize the tax bill is larger than you expected. You instruct your Roth IRA custodian to move the funds back to a traditional IRA. The custodian handles the paperwork and reports it to the IRS. Once the recharacterization is complete, the conversion is treated as if it never happened.
After the deadline passes, you cannot undo a conversion. The money stays in the Roth, you owe the tax, and that is final. This is why some people convert early in the year—it gives them time to see how the market moves and decide whether to recharacterize before the deadline.
Frequently Asked Questions
Do I have to convert my entire IRA at once?
No. You can convert any amount—$1,000, $50,000, or the whole balance. You can also do multiple conversions in the same year or spread conversions across different years. Each conversion is reported separately on Form 8606, but they all count toward your income for that year.
What if I have a SIMPLE IRA—can I convert it?
Yes, but only after you have had the SIMPLE IRA for at least two years. Before that, conversions are not allowed. Once two years have passed, you can convert to a Roth like any other traditional IRA. The pro-rata rule applies if you have other traditional IRAs.
Can I convert my spouse's IRA?
No. You can only convert your own IRAs. Your spouse must do their own conversion from their own accounts. Each person reports their own conversions on their own tax return.
What happens if I convert and then lose my job?
The conversion stands—losing your job does not undo it or change the tax you owe. However, if your income drops significantly that year, the tax bill may be smaller than you expected, which is actually a benefit. You still report the conversion on your tax return for that year.
Can I convert a Roth 401(k) to a Roth IRA?
Yes. A Roth 401(k) can be rolled directly to a Roth IRA without tax consequences, because both are Roth accounts. This is a rollover, not a conversion, and no tax is due. The pro-rata rule does not apply.