How a Roth conversion works in practice

A Roth conversion means moving money from a traditional IRA, SEP-IRA, straightforward IRA, or employer retirement plan into a Roth IRA. You withdraw the money from the pre-tax account, pay income tax on the amount converted in that tax year, and deposit it into a Roth account. The converted money then grows tax-free, and you can withdraw earnings penalty-free after age 59½ if the account has been open at least five years.

The conversion itself is not complicated — it takes a phone call or online request to your financial institution. The tax consequences are what require planning. You owe federal income tax on the full amount converted (unless part of it came from nondeductible contributions), and that tax bill arrives when you file your return the following year. Some people convert small amounts annually; others convert a large sum in a single year when their income is lower than usual.

You do not have to convert your entire IRA balance. You can convert part of it and leave the rest untouched. You can also do multiple conversions in the same year from different accounts.

Key Takeaways

  • A Roth conversion requires you to withdraw money from a pre-tax retirement account and deposit it into a Roth IRA within 60 days, paying income tax on the amount in that tax year.
  • You can convert from a traditional IRA, SEP-IRA, straightforward IRA, or employer plan (401(k), 403(b), or similar), but not directly from an active employer plan unless your plan allows in-service conversions.
  • The IRS taxes the full converted amount as ordinary income in the year you convert, which may push you into a higher tax bracket or trigger Medicare premium increases.
  • After conversion, the money grows tax-free in the Roth, and you can withdraw earnings without penalty after age 59½ if the account has been open at least five years.
  • You have until the tax filing important date (usually April 15) of the year after conversion to undo the conversion through a recharacterization if the account value drops or your tax situation changes.

Step 1: Decide which account to convert from

You can convert from a traditional IRA, SEP-IRA, or straightforward IRA without restriction. If you have money in an employer plan — a 401(k), 403(b), or similar — you can convert only if your plan document allows in-service conversions. Contact your plan administrator or check your plan summary to find out whether this option is available to you.

If you have multiple traditional IRAs, the IRS treats them as one account for tax purposes when you convert. This matters because if some of your IRA money came from nondeductible contributions (contributions you did not deduct on your tax return), you owe tax only on the deductible portion. The IRS calculates this using the "pro-rata rule": if 30% of your total IRA balance is nondeductible, then 30% of your conversion is nontaxable. You cannot cherry-pick only the nondeductible money to convert.

If you have a Roth IRA already, you can still convert to it. The conversion goes into the same account, and the five-year holding period clock started when you first opened any Roth IRA, not when you convert.

Step 2: Contact your financial institution and request the conversion

Call the institution that holds your IRA or employer plan and ask to do a Roth conversion. You can also request this online through your account dashboard if the institution offers that option. Tell them the dollar amount you want to convert or ask them to convert the entire balance.

The institution will ask you where the converted money should go. You can direct it to a Roth IRA you already own at the same institution, or you can open a new Roth IRA first and then request the conversion. If you are converting from an employer plan, you may need to roll the money to a traditional IRA first, then convert from there — ask your plan administrator whether a direct conversion to Roth is possible.

The institution will send you a confirmation showing the amount converted and the date. Keep this document for your tax records.

Step 3: Complete the 60-day rollover window

Once the money leaves your pre-tax account, you have 60 days to deposit it into a Roth IRA. If you request a direct conversion (the institution moves the money directly from one account to the other), this happens automatically and the 60-day window is not a concern. If you take a distribution and deposit it yourself, the clock starts the day you receive the check or the funds hit your bank account.

If you miss the 60-day important date, the IRS treats the money as a withdrawal, not a conversion. You owe income tax on it anyway, plus a 10% early withdrawal penalty if you are under 59½ — and the money is no longer in a retirement account earning tax-free growth. The only exception is if you have a valid reason (serious illness, natural disaster, or similar hardship) to request a waiver from the IRS, which requires filing Form 8329 with your tax return.

You can do only one IRA-to-IRA rollover per 12-month period across all your IRAs combined. A Roth conversion does not count as a rollover for this rule, so you can convert and still do a separate rollover in the same year.

Step 4: Report the conversion on your tax return

In the year you convert, you will receive a Form 1099-R from the institution showing the amount distributed from your pre-tax account. You will also receive a Form 5498 showing the amount contributed to your Roth. File both forms with your tax return.

On your federal return, you report the conversion on Form 8606 (Nondeductible IRAs). This form calculates how much of the conversion is taxable based on your total IRA balances and any nondeductible contributions you made. The taxable amount gets added to your ordinary income for the year.

You do not make a separate payment to the IRS when you file. The tax owed on the conversion is calculated as part of your overall tax liability. If you owe a large amount, you can make estimated tax payments during the year to avoid underpayment penalties, though most people straightforward pay the full amount when they file.

Understanding the tax bill and its timing

The income tax on a conversion is due in the year you convert, not when you withdraw the money later. If you convert $50,000 and you are in the 24% federal tax bracket, you owe approximately $12,000 in federal tax (plus any state income tax). This amount is added to your other income for the year, which may push you into a higher bracket or trigger other tax consequences.

Some people convert in years when their income is unusually low — after retirement, between jobs, or in a year with large losses — to keep the tax bill smaller. Others convert gradually over several years to spread the tax impact. There is no rule requiring you to convert all at once.

If you have substantial pre-tax IRA balances and convert a large amount, the conversion can increase your Modified Adjusted Gross Income (MAGI). This can trigger higher Medicare premiums (if you are on Medicare), reduce tax deductions you would otherwise receive, or affect other tax credits. Run the numbers with a tax professional before converting a large sum.

Undoing a conversion if circumstances change

If the account value drops significantly after you convert, or if your tax situation changes and you realize the conversion was a mistake, you can undo it through a recharacterization. You instruct your financial institution to move the converted money (plus or minus any gains or losses) back to a traditional IRA.

You must request the recharacterization by the tax filing important date (usually April 15) of the year after the conversion. If you file an extension, you have until the extended important date. Once you recharacterize, the conversion is treated as if it never happened — you do not owe tax on it, and you can convert again in a later year if you choose.

Recharacterization is useful if a market downturn cuts your account value in half after you convert. Instead of paying tax on the original $50,000 while the account is now worth $25,000, you can recharacterize and owe no tax. You can then convert again later when the market recovers.

Frequently Asked Questions

Can I convert if I have a 401(k) at work?

Only if your plan allows in-service conversions. Contact your plan administrator or benefits department to ask. If your plan does not allow it, you can convert after you leave the job by rolling the 401(k) to a traditional IRA first, then converting to Roth. Some plans allow conversions only after you reach age 59½ or separate from service.

What happens if I convert and then my income is higher than I expected?

You still owe tax on the full converted amount. You cannot reduce the tax bill after the fact unless you recharacterize the entire conversion by the tax filing important date. If you are concerned about income spikes, convert a smaller amount or wait for a lower-income year.

Do I have to convert all my IRAs at once?

No. You can convert part of one IRA, all of another, or amounts from multiple IRAs in the same year. However, the pro-rata rule applies across all your traditional, SEP, and straightforward IRAs combined, so you cannot avoid tax on the deductible portion by converting only certain accounts.

What if I convert and then need the money back within five years?

You can withdraw the amount you converted (the principal) anytime without penalty. Withdrawing earnings before age 59½ triggers a 10% penalty and income tax, unless you meet a narrow exception like disability or a first-time home purchase. The five-year rule applies to earnings, not to the converted amount itself.

Can I convert a Roth IRA to a traditional IRA?

No. Recharacterization only works in one direction — moving money back from Roth to traditional. Once money is in a Roth and you have recharacterized (if you did), you cannot move it back to Roth in the same year. You would have to wait until the next tax year to convert again.