A Roth conversion moves pre-tax IRA or workplace-plan money into a Roth IRA, and you pay ordinary income tax on the converted amount at your marginal rate of 10% to 37% in 2026.
Key Takeaways
- A Roth conversion is taxed as ordinary income at your marginal rate, 10% to 37% in 2026.
- Conversions have no income limit and no dollar cap, unlike the $7,500 direct Roth contribution ($8,600 at 50 or older).
- A conversion must be completed by December 31 to count for that tax year.
- Two separate five-year clocks apply, each starting January 1 of the relevant year.
- Converted principal withdrawn before five years and before age 59.5 can face a 10% penalty.
- For 2026, IRMAA surcharges begin above $109,000 of MAGI (single) and $218,000 (joint).
- A conversion has been irreversible since recharacterization was eliminated in 2018.
Roth conversion figures (2026)
Figures reflect 2026 federal rules (Sources: IRS, CMS 2026).
A Roth conversion moves pre-tax retirement money from a traditional IRA, SEP IRA, SIMPLE IRA, or 401(k) into a Roth IRA, and you pay ordinary income tax on the amount you convert in the year you convert it. In exchange, the money then grows tax-free and comes out tax-free in qualified retirement withdrawals. There are no income limits and no dollar cap on a conversion.
A Roth conversion is the transfer of pre-tax IRA or workplace-plan dollars into a Roth IRA. You add the converted amount to your taxable income and pay tax at your marginal rate (10% to 37% in 2026). Afterward the balance grows tax-free, takes no required minimum distributions during your life, and passes to heirs income-tax-free. Conversions are uncapped, permitted at any income, and irreversible once done.
What is a Roth conversion?
A Roth conversion is the act of moving money from a pre-tax retirement account into a Roth IRA and paying income tax on the amount moved. The trade is simple: pay tax now, grow tax-free later. Unlike a direct Roth contribution, a conversion carries no income limit and no annual dollar cap, so high earners and large balances can use it.
The money you convert comes out of a tax-deferred account where it has never been taxed. When it lands in the Roth IRA, the IRS treats the converted amount as ordinary income for that tax year. From that point forward, growth inside the Roth is not taxed, and qualified withdrawals are not taxed.
A conversion differs from a Roth contribution. A 2026 Roth contribution is capped at $7,500 ($8,600 if you are 50 or older) and phases out above $153,000 of income for single filers and $242,000 for joint filers. A Roth conversion has neither limit, which is why it is a core retirement tax planning tool for people with six-figure IRA balances.
How does a Roth conversion work?
A Roth conversion works in four steps: open a Roth IRA, choose how much pre-tax money to convert, direct your custodian to move that amount into the Roth, and decide how to pay the resulting tax. The converted amount is added to your taxable income for the year, and the tax is due when you file. Ideally the tax is paid from funds outside the retirement account.
- Open a Roth IRA in the same name and Social Security number as the pre-tax account, if you do not already have one.
- Choose the amount to convert. You can convert all of a balance or part of it in a given year.
- Instruct the custodian (Fidelity, Vanguard, Schwab, or your plan administrator) to move cash or shares from the pre-tax account into the Roth.
- Plan the tax payment. Paying the tax from a separate taxable account, rather than from the converted dollars, generally keeps more money growing inside the Roth.
A conversion must be completed (funds moved) by December 31 to count for that tax year. If you are 73 or older and subject to a required minimum distribution, you must take the required minimum distribution first, because an RMD cannot be converted.
Which accounts can you convert?
You can convert most pre-tax retirement accounts into a Roth IRA, including a traditional IRA, SEP IRA, SIMPLE IRA, and eligible 401(k), 403(b), or 457(b) balances. Some employer plans also allow an in-plan Roth conversion, moving pre-tax dollars into a Roth account inside the same plan. After-tax and already-Roth dollars are handled under separate rules.
| Source account | Converts to | Notes |
|---|---|---|
| Traditional IRA | Roth IRA | Most common conversion; fully taxable if all pre-tax |
| SEP IRA / SIMPLE IRA | Roth IRA | SIMPLE IRA generally after a 2-year holding period |
| 401(k) / 403(b) / 457(b) | Roth IRA | Usually after leaving the employer, or via in-service rules |
| Pre-tax balance inside a 401(k) | Roth 401(k) (in-plan) | Allowed only if the plan permits in-plan conversions |
How much tax will I pay on a Roth conversion?
You pay ordinary income tax on the full converted amount at your marginal rate, which ranges from 10% to 37% in 2026. The conversion stacks on top of your wages, pension, Social Security, and other income, so it can push part of the conversion into a higher bracket. There is no separate conversion tax and no capital-gains treatment; it is taxed like additional salary.
Because the conversion sits on top of your other income, the last dollars converted are taxed at your highest bracket. The 2026 marginal brackets below show where each rate applies to taxable income.
| Marginal rate | Single taxable income | Married filing jointly |
|---|---|---|
| 22% | $50,401 to $105,700 | $100,801 to $211,400 |
| 24% | $105,701 to $201,775 | $211,401 to $403,550 |
| 32% | $201,776 to $256,225 | $403,551 to $512,450 |
| 35% | $256,226 to $640,600 | $512,451 to $768,700 |
| 37% | over $640,600 | over $768,700 |
Worked example. A married couple with $75,000 of ordinary income converts $100,000. Their taxable income for the year becomes roughly $175,000. The conversion stacks on top of the $75,000, so the converted dollars are taxed within the 22% bracket for joint filers in 2026, staying under the 24% bracket that does not begin until $211,401 for joint filers. Deciding how much to convert in one year is largely a question of how far up the brackets you are willing to go.
The hidden tax costs: IRMAA, Social Security, and ACA subsidies
A Roth conversion raises your adjusted gross income, which can trigger costs beyond the income tax itself. Higher income can push Medicare beneficiaries into IRMAA surcharges on Part B and Part D (a 2-year lookback), make more of your Social Security taxable, reduce Affordable Care Act premium subsidies, and cut college financial aid. These downstream effects are why many conversions are spread across several years.
For 2026, the standard Medicare Part B premium is $202.90 per month, and IRMAA surcharges begin above $109,000 of modified AGI for single filers and $218,000 for joint filers. Because IRMAA uses income from two years earlier, a conversion at age 63 or later can raise a Medicare premium at 65.
A conversion is not itself net investment income, but by lifting your AGI it can push interest, dividends, and capital gains into the 3.8% net investment income tax, which applies above $200,000 (single) and $250,000 (joint) of MAGI in 2026.
What is the 5-year rule on a Roth conversion?
The 5-year rule on a Roth conversion is actually two separate five-year clocks, each starting on January 1 of the year of the relevant event. One clock governs whether earnings come out tax-free; the other governs whether you can withdraw converted principal before age 59.5 without the 10% penalty. Missing a clock can create tax or a penalty even inside a Roth IRA.
The clock for tax-free earnings
This clock decides when the earnings in your Roth IRA become tax-free. It starts on January 1 of the year you first fund any Roth IRA (by contribution or conversion) and runs five years. Once five years have passed and you are 59.5 or older, all withdrawals, including earnings, are qualified and tax-free. This clock runs only once per person, not per conversion.
The clock that avoids the 10% penalty (each conversion counts separately)
This second clock applies to each conversion on its own. If you withdraw converted principal before five years have passed and before age 59.5, a 10% early-withdrawal penalty can apply to that amount, even though the tax was already paid at conversion. Each conversion year starts its own five-year clock on January 1. After age 59.5, this penalty clock no longer applies.
What are the pros and cons of a Roth conversion?
The main advantages of a Roth conversion are tax-free growth, no required minimum distributions during your lifetime, tax-free inheritance for heirs, and no income limit to participate. The main drawbacks are an immediate and irreversible tax bill, the pro-rata rule when you hold mixed pre-tax and after-tax IRA money, and the need for outside cash to pay the tax efficiently.
| Potential benefits | Potential drawbacks |
|---|---|
| Tax-free growth and qualified withdrawals | Taxable event now; irreversible since recharacterization was eliminated in 2018 |
| No required minimum distributions for the owner | Pro-rata rule taxes conversions across all pre-tax and after-tax IRA dollars |
| Passes to heirs income-tax-free | Higher AGI can raise IRMAA, Social Security taxation, and NIIT exposure |
| No income limit and no dollar cap | Paying the tax efficiently generally calls for cash from outside the account |
Two rules deserve emphasis. First, a conversion is irreversible: the ability to undo (recharacterize) a conversion was eliminated by the 2017 tax law starting in 2018. Second, the pro-rata rule means that if any of your traditional IRA money is after-tax (nondeductible), each conversion is treated as a proportional blend of pre-tax and after-tax dollars, so you cannot convert only the after-tax portion.
Who should consider a Roth conversion?
A Roth conversion is often considered by people with large pre-tax IRA or 401(k) balances, those who expect to be in the same or a higher tax bracket later, retirees in the low-income years between leaving work and starting Social Security or RMDs, and those focused on leaving a tax-free legacy. It generally fits when you can pay the tax without draining the retirement account.
Large pre-tax balances grow into large future RMDs, taxed as ordinary income, that can push a retiree into higher brackets in their 70s and 80s. Converting some of that balance earlier reduces those future distributions. Running a break-even analysis shows whether the up-front tax is likely to pay off over your time horizon.
When do investors typically consider a Roth conversion?
Common windows for a Roth conversion are low-income years, the gap years after you stop working but before Social Security and RMDs begin, and years when the market has fallen so you convert shares at depressed values. Many investors also use partial multi-year conversions, called bracket filling, to convert just enough each year to stay inside a target bracket.
The old urgency argument, that tax rates are at historic lows and will expire soon, is now dated. The 2025 budget law (OBBBA, Public Law 119-21) made the lower individual rates permanent, so the case for converting rests on your own situation rather than a looming rate increase. The annual conversion deadline is December 31, since a conversion is counted in the calendar year the funds actually move.
How do I do a Roth conversion?
To do a Roth conversion, open a Roth IRA if needed, contact the custodian holding your pre-tax account (Fidelity, Vanguard, or Schwab) or your plan administrator, tell them how much to convert, and complete the transfer by December 31. Pay the resulting income tax from a taxable account rather than the converted balance, and report the conversion on IRS Form 8606 when you file.
- Confirm you are not required to take an RMD first (ages 73 and up must take it before converting).
- Decide the target amount, often the dollars that fit inside your chosen tax bracket for the year.
- Direct the custodian to move cash or shares from the pre-tax account into the Roth IRA.
- Set aside cash outside the account to pay the tax, and consider quarterly estimated payments.
- Report the conversion on Form 8606 with your federal return.
Work with Q3 Advisors
Q3 Advisors is a registered investment adviser focused on retirement tax planning. This page is educational and is not advice; consult a qualified professional.
Frequently asked questions
How much tax will I pay on a Roth conversion?
You pay ordinary income tax on the entire converted amount at your marginal rate, which is 10% to 37% in 2026. The conversion is added on top of your other income, so the converted dollars are taxed at your highest applicable brackets. A $100,000 conversion for a couple already in the 24% bracket adds roughly $24,000 of federal tax, before any state tax.
What is the downside of a Roth conversion?
The main downside of a Roth conversion is the immediate, irreversible tax bill in the conversion year. The higher income can also raise Medicare IRMAA surcharges, make more of your Social Security taxable, and reduce ACA subsidies. The pro-rata rule can add tax when you hold after-tax IRA money, and paying the tax from the converted funds shrinks the benefit.
At what age does it not make sense to do a Roth conversion?
There is no age cutoff, but conversions often make less sense late in life when the time for tax-free growth to outweigh the up-front tax is short, or when your heirs are in lower tax brackets than you. For many investors a common window is the gap between retiring and starting RMDs at 73. A break-even estimate matters more than age alone.
How does the 5-year rule work for a Roth conversion?
Two five-year clocks apply, each starting January 1 of the relevant year. One clock, running from your first Roth IRA, determines when earnings can be withdrawn tax-free. The other applies separately to each conversion and determines whether converted principal can be withdrawn before age 59.5 without a 10% penalty. After age 59.5 and five years, withdrawals are generally fully qualified.
Do you have to pay taxes on a Roth conversion?
Yes, in almost every case you owe ordinary income tax on the pre-tax amount you convert, reported for the year the funds move. The only portion that escapes tax is any after-tax (nondeductible) basis in your IRAs, and the pro-rata rule spreads that basis across the whole conversion. State income tax may also apply depending on where you live.
Can you do a Roth conversion without paying taxes?
A fully tax-free Roth conversion is rare. It generally happens only when the converted dollars are entirely after-tax basis, or when your taxable income for the year is low enough that the conversion is absorbed by deductions and the lowest brackets. Most conversions of pre-tax money create real tax, so the goal is usually to control the bracket, not to avoid tax entirely.
This article is educational and is not investment, tax, or legal advice. Q3 Advisors is a registered investment adviser; registration does not imply a certain level of skill or training. Tax figures reference 2026 IRS amounts and may change. For details about the firm, its services, and conflicts of interest, review our Form ADV. Consult a qualified tax or financial professional about your specific situation before making a conversion.
