Should You Convert a Traditional IRA to a Roth IRA?

Converting a Traditional IRA to a Roth IRA can make sense when paying tax on part of the account today is likely to be more manageable than paying tax on future withdrawals. A conversion generally adds previously untaxed Traditional IRA money to your gross income for the year, but qualified Roth IRA withdrawals can later be tax-free and Roth IRAs do not require lifetime RMDs from the original owner. The strongest conversion opportunities often occur during lower-income years, such as after retirement but before Social Security and required minimum distributions begin. A conversion can be less attractive if it pushes income into a much higher tax range, increases Medicare income-related premiums, reduces Marketplace health-insurance savings, or forces you to use retirement money to pay the tax. You do not have to convert the entire account. A series of partial conversions can let you control the taxable amount year by year.

Converting pre-tax IRA money asks you to make a trade that can feel uncomfortable: voluntarily create taxable income now in exchange for potentially less taxable retirement income later. Start with the Roth vs. Traditional IRA comparison if you are still deciding between the underlying account structures.

That trade can be valuable. Poorly timed conversions can also be expensive when the only rationale is that “Roth is better.”

The value of a conversion depends on the tax rate you pay today, the tax rates and income you may face later, how long the Roth assets can remain invested, whether required minimum distributions are likely to become large, and whether the conversion creates side effects elsewhere in your financial plan.

A better question is not “Should I convert my IRA?” but “How much, if any, should I convert this year?”

Key Takeaways

A Roth conversion creates current taxable income: Previously untaxed Traditional IRA amounts converted to a Roth IRA are generally included in gross income for the conversion year.
Conversions are not limited by the regular Roth IRA income eligibility rules: You may be able to convert Traditional IRA amounts regardless of adjusted gross income.
You do not have to convert everything: Partial conversions can spread taxable income across several years.
Future RMDs can be reduced: Converting lowers the balance left in pre-tax accounts, while Roth IRAs have no lifetime RMD for the original owner under current federal rules.
RMD dollars themselves cannot be converted: If you are already subject to an RMD, the required amount for the year must come out before treating additional IRA money as conversion dollars.
Medicare and health-insurance costs matter: Conversion income can increase Medicare IRMAA later and can affect Marketplace savings before Medicare.
Roth conversions are no longer reversible through recharacterization: Conversions made after 2017 cannot be recharacterized back to a Traditional IRA.
The five-year rules require care: A separate five-year period can apply to each conversion for purposes of the 10% additional tax on certain early Roth distributions.

What Happens When You Convert a Traditional IRA to a Roth IRA?

Moving money from a Traditional IRA into a Roth IRA creates the conversion.

Conversions can be completed in several ways under federal tax rules, including:

a trustee-to-trustee transfer;
a transfer between Traditional and Roth IRAs held by the same trustee; or
a distribution that you roll into a Roth IRA within the applicable 60-day rollover period.

Direct trustee-to-trustee conversion is often administratively simpler because the money moves directly between retirement accounts instead of passing through your hands.

Unlike normal Roth contributions, converted amounts follow their own tax rules.

Previously untaxed Traditional IRA money is generally included in gross income for the year of conversion. Nondeductible contributions—your basis—can receive different tax treatment.

Simple example: You convert $40,000 from a Traditional IRA that consists entirely of deductible contributions and tax-deferred earnings.

The $40,000 is generally included in gross income for the conversion year. The conversion itself is not subject to the 10% additional tax merely because you are younger than 59½ when the money is properly converted, but later early distributions of recently converted amounts can trigger separate five-year rules.

There is no requirement that you convert the entire IRA.

You can convert $10,000, $40,000, $100,000, or another amount that fits the year’s tax plan. That ability to control the amount is what makes partial conversions useful.

Why Convert If It Creates a Tax Bill Today?

Changing the tax character of retirement assets can improve the plan even though it increases current taxable income.

Qualified Roth Withdrawals Can Be Tax-Free

Qualified Roth IRA distributions are not included in gross income when the applicable requirements are met.

Tax-free qualified Roth withdrawals can provide a source of retirement spending that does not create the same federal taxable-income effect as a pre-tax Traditional IRA withdrawal.

Roth IRAs Do Not Have Lifetime RMDs for the Original Owner

Traditional IRAs generally become subject to required minimum distributions after the applicable starting age. Original Roth IRA owners do not face lifetime RMDs under current federal rules.

Converting part of a large Traditional IRA therefore reduces the balance from which future RMDs will be calculated.

Illustration: Two retirees begin with identical $900,000 Traditional IRAs several years before RMDs. One leaves the entire account pre-tax. The other converts part of the balance over several years.

If all other assumptions were identical, the second retiree would enter the RMD years with less money in the Traditional IRA and therefore a smaller account balance subject to the RMD calculation. The trade-off is the income tax paid on the earlier conversions.

Roth Money Adds Tax Flexibility

Retirement expenses are rarely identical every year.

Assets in a Roth account can be especially useful in a year when you need extra money for a home repair, vehicle, family expense, or other large purchase but do not want the entire amount added to taxable income through a Traditional IRA distribution.

That flexibility can matter when you are already receiving Social Security, a pension, and RMDs. Use the Roth IRA Calculator to model potential long-term Roth growth, but it does not replace the tax analysis required for the conversion itself.

The Best Conversion Window Is Often a Lower-Income Year

Many retirees experience a temporary gap between their final paycheck and the arrival of several later income sources.

For example:

wages stop at retirement;
Social Security is delayed;
a pension may not have started;
required minimum distributions have not begun; and
the household is living partly from cash or taxable investments.

That can produce lower taxable income than the household had during its working years or may have later after Social Security and RMDs begin.

Years with lower taxable income can provide room for deliberately recognizing some conversion income.

Example: You retire at 63 and plan to delay Social Security. Your ordinary taxable income falls substantially because wages have stopped, while RMDs are still years away.

Instead of leaving the entire tax-deferred IRA untouched, you could evaluate converting a controlled amount each year before Social Security and RMDs fill more of the future tax return.

A low-income year alone does not justify filling every available dollar with conversion income.

Any proposed conversion amount should also be tested against:

capital gains;
Social Security taxation if benefits have begun;
Medicare IRMAA;
Marketplace health-insurance savings before Medicare;
state income taxes;
deductions and credits;
cash available to pay the tax; and
the tax situation of a surviving spouse.

Use a Roth vs. Traditional IRA comparison to illustrate how paying tax today versus later changes after-tax results, but an actual conversion decision should also include the income interactions above.

Partial Roth Conversions Can Be Better Than All or Nothing

Converting an entire large Traditional IRA can create an enormous one-year increase in taxable income.

Partial conversions give you more control over taxable income.

Target conversion = Taxable income level you are comfortable reaching − Taxable income already expected

No IRS formula creates this target; it is a planning framework.

Illustration: Before any conversion, you estimate that wages, pension income, interest, dividends, and other taxable items will produce $55,000 of taxable income. After reviewing federal and state taxes plus other income-based costs, you decide you are comfortable with another $25,000 of conversion income.

A $25,000 partial conversion may be more useful than converting the entire $300,000 IRA simply because a Roth has attractive long-term features.

Repeating partial conversions over several years can:

spread the tax cost;
reduce the chance of a dramatic one-year income spike;
allow annual adjustments as tax law and household income change;
gradually reduce future pre-tax balances; and
preserve the option to stop converting when circumstances change.

Multi-year conversion plans should be recalculated each year. Do not set a five-year schedule once and assume the same amount will remain optimal.

Do Not Ignore IRA Basis and the Pro-Rata Calculation

Traditional IRAs are not always 100% pre-tax.

You may have made nondeductible Traditional IRA contributions in prior years. Those contributions create basis, which has already been taxed.

Converting only the after-tax dollars may sound possible and leave all pre-tax money behind in another IRA. For ordinary IRA conversions, the federal calculation generally does not let you isolate basis that way when you have other Traditional, SEP, or SIMPLE IRA balances.

Form 8606 determines the taxable and nontaxable portions by looking at your basis together with the value of the relevant IRAs and distributions for the year.

Simplified illustration: Across your Traditional IRAs, you have $20,000 of documented nondeductible basis and $180,000 of pre-tax money. You convert $20,000.

You generally cannot assume the entire $20,000 conversion is tax-free simply because you have $20,000 of basis. Form 8606 applies the basis calculation across the applicable IRA amounts to determine the nontaxable portion.

Tax practitioners commonly refer to this allocation as the pro-rata rule.

Keep prior Forms 8606 and contribution records. Losing track of basis can lead to paying tax twice on money that was already taxed—or incorrectly treating a conversion as more tax-free than it is.

Do not estimate your IRA basis from memory. If you have ever made nondeductible Traditional IRA contributions, review your Forms 8606 before calculating a conversion.

RMDs Must Come Out Before You Convert Additional IRA Money

Once you are subject to required minimum distributions, the RMD for the year cannot itself be converted to a Roth IRA.

Example: Your Traditional IRA RMD for the year is $30,000 and you also want to complete a $50,000 Roth conversion.

The $30,000 required distribution must be satisfied as an RMD. It cannot simply be labeled part of the Roth conversion. After the RMD requirement is addressed, you can evaluate converting additional eligible IRA money.

Conversion planning can be more flexible before RMDs begin, when you have greater control over how much pre-tax income comes out of the account.

Conversions do not become useless after RMD age. They simply have to be coordinated with the mandatory distribution already entering the tax return.

A Conversion Can Raise Medicare or Marketplace Health Costs

Current income tax is not the only conversion cost to model.

Medicare IRMAA

Higher modified adjusted gross income can increase Medicare Part B and Part D premiums through the Income-Related Monthly Adjustment Amount, or IRMAA.

Medicare IRMAA generally uses federal tax-return information from two years earlier. A large conversion in one year can therefore affect Medicare premiums later.

Timing example: A retiree completes a large taxable Roth conversion while enrolled in Medicare. Because IRMAA generally uses tax data from two years earlier, that income spike may show up in Medicare premiums with a delay rather than immediately.

Those thresholds and premium amounts change over time. Check the current Social Security or Medicare tables rather than relying on an old threshold.

SSA allows beneficiaries to request a new IRMAA determination after certain qualifying life-changing events that reduce income, but a voluntary Roth conversion is not itself a reason to assume the surcharge will be removed.

Marketplace Coverage Before Medicare

HealthCare.gov bases Marketplace savings on expected household income and uses a modified adjusted gross income calculation.

Because taxable Roth-conversion income increases adjusted gross income, a conversion can reduce the premium tax credit or other Marketplace savings for which the household qualifies.

Income effects can be particularly important for an early retiree using Marketplace coverage between leaving work and becoming eligible for Medicare.

Model the health-insurance effect before converting. A conversion that looks attractive based only on the federal income-tax bracket can become less attractive after a higher Marketplace premium or future Medicare IRMAA is included.

The Five-Year Rules Matter Most When You May Need the Roth Money Soon

Five-year rules for Roth IRAs are often compressed into one sentence even though more than one five-year concept exists.

For conversions, a separate five-year period applies to each conversion or qualifying rollover when determining whether certain early distributions of converted taxable amounts can face the 10% additional tax.

Each conversion five-year period generally starts on the first day of the tax year in which the conversion was made.

Reaching age 59½ or qualifying for an exception can change the additional-tax analysis.

Converted amounts also interact with a different five-year concept from the rule that helps determine whether Roth IRA earnings are part of a qualified distribution.

Five-year issue	What it generally addresses
Qualified Roth distribution period	Whether a Roth IRA distribution can qualify for tax-free treatment of earnings when the other qualifying conditions are met
Conversion five-year period	Whether an early distribution of taxable converted amounts can trigger the 10% additional tax; each conversion has its own period

Distribution ordering rules also matter. Distributions generally come first from regular contributions, then conversion and rollover contributions on a first-in, first-out basis, and then earnings.

Anyone under 59½ who expects to spend converted money soon should review the rules before converting. Converting is not a simple way to make every pre-tax retirement dollar immediately penalty-free.

When a Roth Conversion May Not Be Worth It

A Roth conversion can be a poor trade when the current tax cost is high and the future benefit is small.

Reasons to be cautious include:

Your current tax rate is unusually high. Converting during a peak-earning year can mean voluntarily recognizing income when taxes are most expensive.
You expect materially lower taxable income later. Paying a high rate today to avoid a lower future rate can work against the purpose of the conversion.
You need IRA money to pay the conversion tax. Using retirement assets for the tax reduces the amount that reaches the Roth and can create additional consequences, particularly before age 59½.
The conversion materially increases Medicare IRMAA.
The conversion reduces valuable Marketplace savings.
You plan substantial qualified charitable distributions later. QCDs can provide a tax-efficient use for qualifying IRA assets once eligible; converting every pre-tax dollar could reduce that future opportunity.
You expect to spend the Roth money soon. A short time horizon reduces the period available for tax-free growth and can make five-year rules more relevant.
You may move to a lower-tax state. State income tax can change the conversion comparison.
You are converting solely because the market fell. A lower account value can reduce the dollars converted for a given tax cost, but market timing alone is not enough reason to create taxable income.

Also remember that Roth conversions made after 2017 cannot be recharacterized back to a Traditional IRA.

Once completed, a $100,000 conversion generally cannot be reversed simply because the market falls afterward or the tax result proves unattractive.

How to Decide How Much to Convert This Year

Useful conversion analysis is annual and incremental.

Estimate income without a conversion. Include wages, pensions, Social Security, RMDs, interest, dividends, capital gains, and other taxable items.
Estimate deductions and filing status. Do not choose a conversion amount from gross income alone.
Identify the tax range you are willing to use. Compare today’s marginal federal and state tax cost with the tax situation you expect later.
Check IRA basis. Use prior Forms 8606 and current account values before estimating the taxable conversion.
Model Medicare IRMAA or Marketplace effects. Treat health-insurance costs as part of the conversion cost.
Include Social Security taxation. If you are already receiving benefits, additional income can affect how much is included in taxable income.
Check RMD status. Satisfy any required distribution before converting additional eligible money.
Decide where the tax will come from. Paying tax from non-retirement cash can leave more money inside the Roth, but only if doing so does not weaken your emergency or spending reserves.
Compare a partial conversion with no conversion. Then test a larger amount rather than jumping directly to a full conversion.
Review the survivor scenario. A surviving spouse may eventually face single-filer tax brackets while controlling much of the same retirement wealth.
Repeat next year. Tax law, markets, income, health coverage, and account balances change.

Example: A married couple retires before Social Security and RMDs. They have a large Traditional IRA, enough taxable savings to fund living expenses, and relatively low taxable income for several years.

Instead of converting the entire IRA, they model $20,000, $40,000, and $60,000 conversions. The larger options reduce future pre-tax balances faster, but they also create more current tax and may cross income thresholds that affect health-insurance costs. The useful conversion amount is the one with the best overall trade-off—not necessarily the largest amount they can legally convert.

Multi-year retirement tax planning often makes Roth conversions more effective.

A Roth conversion plan should not simply maximize the amount moved into a Roth. Instead, conversions can shift some taxable income from years when it may be expensive or forced into years when you deliberately choose to recognize it.

Frequently Asked Questions (FAQs)

Can anyone convert a Traditional IRA to a Roth IRA?

Adjusted gross income does not create the same eligibility limit for Roth conversions that applies to direct Roth IRA contributions. Regular Roth IRA contributions can still be limited by income.

Is there an annual limit on Roth conversions?

Annual Roth IRA contribution limits do not cap conversion amounts. The workable conversion amount depends on how much taxable income and related cost you are willing to create in a particular year, along with any account-specific restrictions.

Do I pay tax when I convert a Traditional IRA to a Roth IRA?

Generally, previously untaxed Traditional IRA amounts converted to a Roth IRA are included in gross income for the conversion year. Nondeductible basis can make part of the conversion nontaxable, with Form 8606 used to calculate and report the applicable amounts.

Can I do a partial Roth conversion?

Partial conversions are generally allowed for eligible Traditional IRA amounts. Spreading taxable income across several years is one advantage of partial conversions instead of creating one large tax event.

Can I convert my RMD to a Roth IRA?

Required minimum distributions for the year cannot be converted. After satisfying the RMD, you can evaluate converting additional eligible IRA funds.

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

Conversions made after 2017 cannot be recharacterized back to a Traditional IRA. Estimate the tax cost before completing the transaction.

Can a Roth conversion increase Medicare premiums?

Potentially. Taxable conversion income can increase modified adjusted gross income, which can affect Medicare Part B and Part D IRMAA. IRMAA determinations generally rely on tax-return information from two years earlier.

Does a Roth conversion reduce future RMDs?

Future RMDs can decline because moving converted assets out of a Traditional IRA reduces the balance potentially subject to future RMD calculations. Original Roth IRA owners do not face lifetime RMDs under current federal rules.

Is a Roth conversion always better in a low-tax year?

Not always. Low marginal tax rates can make a conversion more attractive, but Marketplace savings, Medicare IRMAA, Social Security taxation, state tax, IRA basis, cash needed to pay the tax, and your expected future tax situation can change the result.

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