How Roth Conversions Work, and What They Can Cost
A guide to the taxes, timing, five-year rules, and downstream effects to consider before converting retirement money to a Roth.
A Roth conversion moves all or part of a traditional IRA or other eligible retirement account into a Roth account. The taxable portion is added to your income for that year. In return, qualified Roth withdrawals are tax-free, and Roth IRAs have no required minimum distributions during the original owner’s lifetime.
A conversion may be worth considering when your current tax rate is lower than the rate you expect to pay later. But tax brackets are only part of the decision. Medicare premiums, Social Security taxation, health-insurance credits, available cash, and legacy planning may also matter.
Conversions made after 2017 generally cannot be undone, making the amount and timing especially important.
A few facts worth knowing
Income or dollar limits
Roth conversions are not subject to the income and contribution limits that apply to direct Roth IRA contributions.
Different five-year rules
One applies to qualified Roth IRA withdrawals. A separate five-year period applies to each conversion.
Recharacterizations ended
Conversions made after 2017 generally cannot be reversed or recharacterized.
Tax brackets and Medicare IRMAA thresholds can change over time.
See IRS.gov and Medicare.gov for current figures.
The idea behind “filling a tax bracket”
A conversion increases taxable income. One approach is to convert an amount that keeps taxable income within a selected marginal tax bracket while avoiding an unintended move into the next bracket.
Filling a tax bracket
Sizing a conversion within a target bracket
What you are actually buying
A conversion does not make money. It trades one thing for another, and it is worth being clear-eyed about both sides of that trade.
What you give up
- Cash, now, to pay a tax bill you could otherwise have deferred for years.
- The use of that money in the meantime, which is a real cost even though it never shows on a statement.
- Flexibility. Since 2018 a conversion cannot be undone, so a year that turns out differently than expected cannot be walked back.
What you get
- A known current tax rate on the taxable amount converted.
- The potential for tax-free qualified withdrawals and no required minimum distributions during your lifetime.
- A smaller pre-tax balance, which may reduce future required distributions and the income-tax burden on beneficiaries.
Whether a conversion helps depends on more than comparing today’s tax rate with a future rate. The amount converted, payment of the tax, investment horizon, future required distributions, Medicare premiums, Social Security taxation, and treatment of beneficiaries can all affect the result. Partial conversions over multiple years are one way these competing considerations may be managed.
The conversion tax may not be the only financial effect
This is the part that surprises people. A conversion raises your income for the year, and several things that have nothing to do with retirement accounts are priced off your income.
The income tax on the conversion
Due for the year you convert
The converted pre-tax amount is added to your income for that year and taxed at ordinary rates. This is the bill everybody expects, and it is the one people plan for.
Medicare premium surcharges
Generally two years later
Medicare normally determines income-related Part B and Part D premiums using tax-return information from two years earlier. A conversion may therefore affect premiums after the conversion year. See Medicare.gov.
More of your Social Security becoming taxable
The same year
How much of a Social Security benefit is taxable depends on a measure of income that a conversion increases. Converting while collecting can pull more of the benefit into taxable income. See SSA.gov and IRS.gov.
Marketplace health-insurance credits
The same year
If you buy coverage through the Marketplace, the premium tax credit is calculated from income. Extra income from a conversion can reduce or eliminate it, which matters most for early retirees bridging to Medicare. See HealthCare.gov.
None of these make a conversion wrong. They make the size of it matter, and they are the reason a conversion should generally be evaluated using a complete tax projection rather than a tax-bracket table alone. Every threshold involved is set by a different agency and changes from year to year, so check the current figures at the source and consider tax advice before you convert.
How Roth conversions work, in detail
What a Roth conversion is
- A Roth conversion moves money from a traditional, SEP, or SIMPLE IRA, or eligible assets from an employer retirement plan, into a Roth account. The taxable portion is generally included in income for the year of conversion. Qualified Roth withdrawals may later be tax-free. There is no income limit and no dollar cap on a conversion, which is different from the limits on direct Roth contributions. Note that a SIMPLE IRA may have special restrictions during its first two years. Whether converting makes sense is highly specific to your situation. See IRS.gov.
Conversion methods and Form 8606
- The IRS generally recognizes three methods for converting IRA assets: a 60-day rollover (you receive a distribution and redeposit it into a Roth IRA within 60 days), a trustee-to-trustee transfer between different financial institutions, and a same-trustee transfer within one institution. Traditional, SEP, and SIMPLE IRA conversions are generally reported using Form 8606, which also tracks nondeductible IRA basis, the figure the pro-rata math depends on. An employer-plan-to-Roth-IRA transaction may be reported differently. See IRS.gov.
Managing your tax bracket
- Because a conversion increases ordinary taxable income, the converted dollars may span more than one marginal tax bracket. Some people use partial conversions to manage how much income falls into higher brackets. Since your final income for the year is clearer near year-end, that is often when sizing is decided. The appropriate amount, including whether to convert at all, depends on the complete tax situation. See IRS.gov.
The two five-year rules
- This is the point most people conflate. One five-year rule helps determine whether Roth IRA earnings qualify for tax-free treatment, and it generally begins with the first tax year for which you funded any Roth IRA. A separate five-year period applies to each conversion when determining whether an early distribution of converted taxable amounts may trigger the additional 10% federal tax before age 59½. Roth ordering rules and exceptions also apply. See IRS.gov.
The pro-rata rule and IRA aggregation
- For conversion math, the IRS treats all of your traditional, SEP, and SIMPLE IRAs as one combined pool, across every custodian. You cannot cherry-pick only the after-tax dollars to convert - the taxable share is prorated across the whole aggregate balance, measured at year-end. Opening a fresh IRA or converting from just one account does not sidestep this. It is a frequent and expensive surprise, especially alongside a backdoor Roth. Consider tax advice. See IRS.gov.
Conversion recharacterizations
- Conversions made after 2017 cannot generally be recharacterized back into a traditional IRA. Before the 2018 tax law, a conversion could be undone if the market fell or the estimate was off. Any taxable converted amount remains taxable for that year even if the account subsequently declines. Note that contributions, not conversions, may still qualify for recharacterization under separate rules. See IRS.gov.
Downstream effects: Medicare, Social Security, and ACA
- A conversion adds to your income for the year, and that ripples outward. It can raise Medicare premium surcharges (IRMAA), which use a roughly two-year lookback - this year's income can lift premiums about two years later, and the tiers work as cliffs. It can increase the taxable portion of Social Security benefits, and it can reduce or eliminate ACA marketplace premium subsidies. A voluntary conversion is generally not an appealable life-changing event for IRMAA. These interactions are why timing matters. See IRS.gov.
When a conversion may make sense, and paying the tax
- Roth conversions are often considered during lower-income years, including the period after retirement but before Social Security benefits and required minimum distributions begin. They may also be considered when account values are temporarily lower, although future market performance is uncertain. When retirement assets are withheld or distributed to pay the conversion tax, that amount is not converted and may be subject to income tax and an additional 10% federal tax before age 59½. Paying the tax from non-retirement funds may preserve more of the converted amount inside the Roth. See IRS.gov.
Conversion ladders for early retirees
- A Roth conversion ladder uses a series of partial conversions, often for someone retiring before age 59½. Each conversion has its own five-year period for purposes of the additional 10% federal tax. The strategy generally requires other available assets during the years before converted amounts become accessible without that additional tax. See IRS.gov.
RMDs, and what changes for heirs
- A Roth IRA has no required minimum distributions during the original owner's lifetime, and converting shrinks the future traditional-IRA balance that would otherwise force taxable RMDs - a common legacy and tax-planning rationale. Heirs are treated differently: many non-spouse beneficiaries must fully distribute an inherited Roth IRA by the end of the tenth year following the owner's death. Those distributions are generally tax-free when the applicable Roth five-year requirement has been satisfied. See IRS.gov for the current RMD age and inherited-account rules.
Sources and further reading
The rules on this page come from the primary IRS sources below. Because tax brackets, IRMAA tiers, and the RMD age change, confirm the current figures directly with the IRS, and consult a qualified tax professional, before you act.
- IRS Publication 590-AMaking a conversion, allowable conversions, the 60-day rule, and the recharacterization ban.
- IRS Publication 590-BDistributions: the Roth ordering rules, the 5-year clocks, qualified distributions, and RMDs.
- IRS - Retirement Plans FAQs Regarding IRAsThe three conversion methods and how converted amounts are taxed and reported.
- IRS - IRA Required Minimum Distributions FAQsThe current RMD start age and the Roth exemption during the owner's lifetime.
- IRS - Instructions for Form 8606Reporting conversions and tracking after-tax IRA basis - the input to the pro-rata math.
- IRS - Rollovers of Retirement Plan and IRA DistributionsGeneral rollover mechanics, the 60-day window, and direct-versus-indirect movement.
Last updated September 2026. General education, not financial, tax, or legal advice. Parsonex does not recommend converting, or any particular strategy, on this page.
FAQ
What is a Roth conversion?
A Roth conversion moves pre-tax retirement money, such as a traditional IRA balance, into a Roth IRA. You pay ordinary income tax on the converted amount in the year you convert, and qualified withdrawals later are tax-free. There is no income limit and no dollar cap on a conversion. Whether it makes sense depends on your situation. See IRS.gov.
Is a Roth conversion taxable?
Generally yes. The pre-tax amount you convert is taxed as ordinary income in the year of the conversion. That upfront tax is the trade for tax-free qualified withdrawals later. How much it costs depends on the tax bracket the converted dollars land in. This is education, not tax advice. See IRS.gov.
What does it mean to fill up a tax bracket?
Because a conversion is taxed as ordinary income, one approach is to convert only enough to reach the top of a target bracket in a given year, rather than a large amount that pushes income into a higher bracket. Since your final income is clearer near year-end, that is often when the amount is decided. The brackets are set by the IRS and change most years. See IRS.gov.
What is the Roth conversion 5-year rule?
There are two separate 5-year clocks. Each conversion has its own clock, and withdrawing converted principal before it ends and before age 59½ can trigger an additional 10% federal tax even though tax was already paid. A different clock governs whether earnings come out as a tax-free qualified distribution. They start on different events. See IRS.gov.
How does the pro-rata rule affect a conversion?
The IRS treats all your traditional, SEP, and SIMPLE IRAs as one combined pool across every custodian. You cannot convert only the after-tax dollars, so the taxable share is prorated across the whole balance, measured at year-end. Opening a new IRA or converting from one account does not sidestep it. Consider tax advice. See IRS.gov.
Can I undo a Roth conversion?
No. Recharacterizing a conversion has not been allowed since 2018. Conversions made after 2017 generally cannot be reversed, and any taxable converted amount remains taxable for that year even if the account subsequently declines. Recharacterizing a contribution still exists, but conversion recharacterization does not. See IRS.gov.
Can a Roth conversion raise my Medicare premiums?
It can. A conversion adds to your income, and Medicare premium surcharges (IRMAA) use a roughly two-year lookback, so this year's income can lift premiums about two years later. The tiers work as cliffs, and a voluntary conversion is generally not an appealable life-changing event. It can also affect the taxation of Social Security and ACA subsidies. See IRS.gov.
When might a Roth conversion make sense?
Conversions are often discussed in low-income years, such as an early-retirement gap before Social Security and required distributions begin, and in market downturns. The math generally assumes you pay the tax from outside funds rather than from the converted balance. This is general education, not a recommendation to convert; the decision is fact-specific. See IRS.gov and a tax professional.
What is a Roth conversion ladder?
It is a sequence of partial conversions, one tranche a year, often used by people who retire before 59½. Each tranche becomes accessible without the additional 10% federal tax after its own five-year period, so the approach needs other available assets to live on during the seasoning period. It is intricate and depends on that outside cushion. See IRS.gov.
Are converted Roth IRA funds subject to required minimum distributions?
A Roth IRA has no required minimum distributions during the original owner's lifetime, and converting reduces the future traditional-IRA balance that would force taxable RMDs. Heirs are different: many non-spouse beneficiaries must fully distribute an inherited Roth IRA by the end of the tenth year following the owner's death, though those distributions are generally tax-free when the Roth five-year requirement has been satisfied. See IRS.gov.
Have questions about a Roth conversion?
This material is for educational purposes only. It does not constitute investment, tax, or legal advice, and it is not a recommendation of any security or strategy. Individual circumstances vary. Consult a qualified professional before making financial decisions.