Roth Conversion Explained: When Paying Tax Now Saves You Later

A Roth conversion means moving money from a pre-tax account, like a traditional IRA or 401(k), into a Roth IRA. You pay income tax on the amount converted now, and in exchange, future qualified withdrawals are tax-free. Done at the right time, it can lower your lifetime tax bill.

How a Roth conversion works

1. You choose an amount to move from a traditional IRA (or an old 401(k)) to a Roth IRA.
2. The pre-tax amount converted is added to your taxable income for that year.
3. The money then grows in the Roth, and qualified withdrawals are tax-free.

There's no income limit for conversions, and no cap on how much you can convert. Conversions must be completed by December 31 to count for that tax year, and they can't be undone.

Example

A married couple with $90,000 of taxable income converts $15,000. Their taxable income rises to $105,000. Using 2026 brackets, about $10,800 of the conversion is taxed at 12% and the rest crosses into the 22% bracket, for roughly $2,200 of federal tax. If that $15,000 grows to $45,000 by retirement, the entire $45,000 can come out tax-free. Simplified, hypothetical example.

When a Roth conversion often makes sense

• Low-income years: early retirement before Social Security and RMDs start, a sabbatical, a job loss or a business loss.
• You expect higher tax rates later, from a growing income, larger RMDs, or changes in tax law.
• You can pay the tax from other savings, not from the converted money. Paying from the IRA itself shrinks what grows tax-free and may trigger a penalty if you're under 59½.
• Estate planning: heirs inheriting a Roth IRA generally owe no income tax on withdrawals.
• Reducing future RMDs, since Roth IRAs have no required minimum distributions for the original owner.

When to be careful

• High-income years: you may pay a high rate now to avoid a lower one later.
• Ripple effects on other benefits: a conversion raises your income, which can reduce ACA subsidies, increase Medicare premiums (IRMAA, based on income two years earlier), make more Social Security taxable, or reduce the $6,000 senior deduction.
• You'll need the money soon.

Rules to know

The 5-year rule for conversions

Each conversion has its own five-year clock. If you're under 59½ and withdraw converted amounts within five years, you may owe a 10% penalty (not tax, since you already paid it). After 59½, this penalty doesn't apply.

The pro-rata rule

If you have both pre-tax and after-tax (nondeductible) money in your traditional IRAs, you can't choose to convert only the after-tax part. The IRS treats all your traditional, SEP and SIMPLE IRAs as one pool, and each conversion is a proportional mix of taxable and non-taxable money.

The partial conversion strategy

Instead of converting everything at once, many people convert a little each year, just enough to "fill up" their current tax bracket. For example, if you're in the 12% bracket with $20,000 of room before the 22% bracket starts, converting up to $20,000 keeps all of it taxed at 12%. Check the brackets in our 2027 tax brackets guide.

Step by step

1. Estimate this year's taxable income.
2. Decide how much bracket room you want to use.
3. Plan how you'll pay the tax (cash savings or estimated payments).
4. Request the conversion at your brokerage before December 31.
5. Report it on your return (Form 8606). Your custodian will send Form 1099-R.

Related: Roth IRA vs traditional IRA and year-end tax checklist.