Does a Roth conversion trigger NIIT? No, not directly: a Roth conversion is not net investment income, so the converted dollars are never subject to the 3.8% Net Investment Income Tax. The conversion can still cost you indirectly, because it raises your modified adjusted gross income (MAGI) and can pull your dividends, interest, and capital gains above the NIIT threshold.
A Roth conversion does not directly trigger the 3.8% NIIT. IRC Section 1411(c)(5) excludes retirement-plan distributions from net investment income, so the conversion amount is never surtaxed. It can still raise the bill indirectly: conversion income lifts your MAGI, and once MAGI clears $200,000 (single) or $250,000 (married filing jointly), your other investment income becomes exposed to the 3.8% tax.
Does a Roth conversion trigger the 3.8% NIIT? (short answer: no, but it can still cost you)
A Roth conversion does not directly trigger the 3.8% Net Investment Income Tax. The converted dollars are statutorily excluded from net investment income, so the surtax never lands on the conversion itself. The exposure is indirect: a conversion raises your MAGI, and higher MAGI can pull dividends, interest, and capital gains above the NIIT threshold, exposing that other income to the 3.8%.
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That distinction is the entire planning question. Once you see that the conversion is excluded from net investment income but included in MAGI, you can fold any NIIT cost into a multi-year Roth conversion plan instead of being surprised on a single year’s return. For the surtax mechanics on their own, see our 2026 NIIT overview.
Why the converted dollars escape NIIT: IRC Section 1411(c)(5)
Roth conversion dollars escape the NIIT because IRC Section 1411(c)(5) says so in the statute. That subsection provides that net investment income does not include any distribution from a plan or arrangement described in Sections 401(a), 403(a), 403(b), 408, 408A, or 457(b). A Roth conversion is a distribution from a traditional IRA or employer plan, so it sits squarely inside that carve-out.
What actually counts as “net investment income”?
Net investment income is a defined category under IRC Section 1411, not a synonym for MAGI. It generally includes taxable interest, dividends, capital gains, rental and royalty income, non-qualified annuity income, and income from passive business activities. Wages, self-employment income, Social Security benefits, and qualified retirement-plan distributions are not net investment income, which is why a Roth conversion never enters the NII bucket.
Why IRA, 401(k), and Roth-conversion distributions are carved out
Congress carved out qualified-plan distributions because those accounts already face their own ordinary-income regime. Treasury regulations under Section 1411 confirm that a conversion to a Roth IRA described in Section 408A is treated as a distribution excluded from net investment income. So an ordinary IRA withdrawal, a required minimum distribution, and a Roth conversion all land outside the NII base, even though each raises MAGI.
How a Roth conversion CAN trigger the surtax: the MAGI trap
A Roth conversion can trigger the surtax indirectly by inflating MAGI. The NIIT is calculated on the smaller of two numbers, and one of them is driven by how far MAGI exceeds the threshold. A conversion raises MAGI without adding to net investment income, and that asymmetry is what catches people: the conversion is not surtaxed, but it can make existing dividends and gains newly reachable by the 3.8%.
The “lesser-of” formula, explained
The NIIT equals 3.8% multiplied by the lesser of (a) your net investment income, or (b) the amount by which your MAGI exceeds the applicable threshold. If either number is zero, the tax is zero. This is why a retiree with no dividends or interest can convert a very large sum and owe no NIIT: there is no investment income for the 3.8% to attach to.
Excluded from NII, included in MAGI: the asymmetry that catches people
The conversion raises (b), the MAGI-over-threshold figure, but never raises (a), the net investment income figure. So a large conversion can push the MAGI side of the lesser-of test well above your investment income, at which point your entire net investment income becomes the taxable base. The 3.8% then lands on your dividends and gains, not on the converted dollars themselves.
The 2026 MAGI thresholds that trigger NIIT (not inflation-indexed)
The 2026 NIIT MAGI thresholds are $200,000 for single and head-of-household filers, $250,000 for married filing jointly, and $125,000 for married filing separately. These figures are set in IRC Section 1411 and are not indexed for inflation, so they have stayed flat since the tax took effect in 2013. As incomes and portfolios grow, more households drift over the line each year.
| Filing status | 2026 MAGI threshold | Inflation-indexed? |
|---|---|---|
| Single / Head of Household | $200,000 | No (frozen since 2013) |
| Married Filing Jointly | $250,000 | No (frozen since 2013) |
| Married Filing Separately | $125,000 | No (frozen since 2013) |
| Estates and Trusts | $16,000 (2026) | Yes (tracks the top trust bracket) |
Note the outlier: the individual thresholds are frozen, but the estate and trust threshold tracks the dollar figure where the top trust bracket begins, which does adjust ($15,650 in 2025 rising to $16,000 in 2026). Trusts hit the 3.8% surtax at a very low income level, one reason conversions are almost always modeled at the individual level. For sizing a conversion, our how much to convert to Roth guide walks through the math.
Worked example: a conversion that stays under the line = $0 NIIT
Take an illustrative single filer with $15,000 of taxable dividends and interest and a base MAGI of $150,000 before any conversion. She converts $40,000, lifting MAGI to $190,000. Because $190,000 is still below the $200,000 threshold, the MAGI-minus-threshold figure is zero, the lesser-of test returns zero, and she owes $0 of NIIT despite holding $15,000 of investment income.
Worked example: a conversion that pushes MAGI over the line
Now take an illustrative single filer with $20,000 of dividends and a base MAGI of $170,000. He converts $60,000, lifting MAGI to $230,000, which is $30,000 over the $200,000 threshold. The NIIT applies to the lesser of net investment income ($20,000) or the MAGI excess ($30,000). The smaller figure is $20,000, so the surtax is 3.8% of $20,000, or $760, charged on the dividends, not the $60,000 conversion.
NIIT vs. IRMAA vs. ordinary income tax: three separate hits from one conversion
One Roth conversion can set off three distinct costs, and conflating them produces bad math. The conversion itself is taxed as ordinary income, usually its largest cost. Separately, it can add NIIT on your other investment income if MAGI crosses the threshold, and it can raise Medicare premiums about two years later through IRMAA. These are three separate systems with three separate rulebooks.
| Cost | What it taxes or affects | Hits the conversion dollars? |
|---|---|---|
| Ordinary income tax | The converted amount at your marginal rate (10% to 37%) | Yes, directly |
| NIIT (3.8%) | Your other net investment income, only if MAGI crosses the threshold | No, only indirectly via MAGI |
| IRMAA | Medicare Part B and Part D premiums, about two years later | No, but it is a MAGI-driven surcharge |
IRMAA is not the same as NIIT, though both key off MAGI. NIIT is a 3.8% tax on investment income reported on your 1040. IRMAA is a premium surcharge on Medicare Parts B and D that uses a two-year lookback: in 2026 it starts above $109,000 (single) or $218,000 (joint) MAGI, on top of the $202.90 standard Part B premium. A 2026 conversion can therefore raise 2028 premiums. For the interaction with mandatory withdrawals, see our note on required minimum distributions in 2026.
How to convert without triggering NIIT (planning moves)
Because the exposure is a MAGI-threshold question, most planning levers control how much MAGI you recognize in any single year. None of the moves below is right for every situation, and each interacts with your brackets, IRMAA, and broader plan. Many investors evaluate them across a multi-year window rather than one year at a time, weighing the surtax against the long-run value of converting.
Partial conversions and laddering
Splitting one large conversion into several smaller annual conversions can keep MAGI at or below the threshold each year, so the MAGI-minus-threshold figure stays near zero. A conversion ladder is a common structure for this. Pairing the sizing with a break-even analysis helps weigh the annual surtax against the long-run tax-free growth many investors are targeting.
Converting in low-investment-income years
Because NIIT is capped at your net investment income, converting in a year when that income is low shrinks the surtax base from the start. A retiree who has harvested losses, holds mostly tax-deferred assets, or has little taxable interest may find that even a MAGI-crossing conversion produces modest NIIT, because side (a) of the lesser-of test is small to begin with.
Sequencing around large one-off MAGI events
A property sale, a large realized capital gain, or a big bonus can consume threshold headroom on its own. Scheduling conversions away from those years, rather than stacking them, keeps a single year from crossing the line by a wide margin. Coordinating with the December 31 conversion deadline leaves room to right-size the amount late in the year, once the year’s income is clearer.
Where is the NIIT reported: Form 8960 and Schedule 2
The NIIT is computed on IRS Form 8960, which walks through your net investment income and your MAGI to apply the lesser-of formula. The resulting tax flows to Schedule 2 and then onto your Form 1040. It is a federal tax only: states generally do not levy their own 3.8% NIIT, so the surtax appears as a purely federal line item on your return.
Did the 2025 OBBBA change the NIIT, and do states impose it?
No. The 2025 budget law, the One Big Beautiful Bill Act (P.L. 119-21), made the 10% to 37% ordinary brackets permanent and added a temporary senior deduction, but it did not change the NIIT rate, the $200,000 / $250,000 / $125,000 thresholds, or the retirement-distribution exclusion in Section 1411(c)(5). The NIIT remains a 3.8% federal-only tax; states generally do not impose their own version.
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Frequently asked questions
Does a Roth conversion count as net investment income?
No. A Roth conversion is a distribution from a traditional IRA or employer plan, and IRC Section 1411(c)(5) excludes such distributions from net investment income. It is taxed as ordinary income and raises your MAGI, but it is never counted as net investment income and is never directly subject to the 3.8% NIIT.
How does a Roth conversion affect the 3.8% NIIT?
A Roth conversion affects the NIIT indirectly through MAGI. The conversion is excluded from net investment income but included in MAGI, so it can push MAGI above the $200,000 (single) or $250,000 (joint) threshold. Once MAGI crosses the line, your existing dividends, interest, and capital gains can become subject to the 3.8% surtax.
What are the 2026 NIIT MAGI thresholds?
For 2026 the NIIT MAGI thresholds are $200,000 for single and head-of-household filers, $250,000 for married filing jointly, and $125,000 for married filing separately. Estates and trusts reach the surtax at $16,000. The individual figures are set in IRC Section 1411 and are not indexed for inflation, so they have not changed since 2013.
How do I avoid the net investment income tax on a Roth conversion?
Because the exposure is a MAGI-threshold question, many investors keep MAGI in check by converting in partial amounts across several years, converting in low-investment-income years, and sequencing conversions away from large one-off MAGI events such as a property sale. None of these moves suits every situation, and each interacts with brackets and IRMAA, so modeling helps.
Is the Roth conversion amount itself subject to NIIT?
No. The conversion amount is statutorily excluded from net investment income under IRC Section 1411(c)(5), so the 3.8% NIIT never applies to the converted dollars. The maximum NIIT in any year is capped at 3.8% of your net investment income, meaning a converter with no dividends, interest, or gains can owe no NIIT regardless of the conversion size.
Where is the NIIT reported on my tax return?
The NIIT is reported on IRS Form 8960, which applies the lesser-of formula to your net investment income and your MAGI. The resulting 3.8% tax carries to Schedule 2 and then to your Form 1040. It is federal only; states generally do not impose a matching 3.8% surtax on net investment income.
