You pay income tax on a Roth conversion in the year you move the money, not when you withdraw it later

A Roth conversion moves money from a traditional IRA (or similar pre-tax account) into a Roth IRA. The IRS treats this move as income in that tax year. You owe federal income tax on the full amount you convert, unless that money was already taxed when you put it in. You do not owe tax again when you pull the money out of the Roth years later — that is the whole point of converting.

The tax bill arrives with your regular income tax return for the year you convert. You do not make a separate payment to the IRS. Instead, the conversion amount gets added to your taxable income, which may push you into a higher tax bracket and increase what you owe overall.

Timing matters because the IRS counts the conversion as income for the year the money actually moves into the Roth, not the year you decide to do it or the year you file your return.

Key Takeaways

  • The full amount you convert becomes taxable income in the year the money moves into the Roth IRA.
  • You pay the tax through your regular income tax return, not through a separate IRS payment.
  • If you had already paid tax on part of the money (basis), only the untaxed portion is taxable at conversion.
  • The conversion can push you into a higher tax bracket, raising your total tax bill beyond just the conversion amount.
  • You can pay the tax from the conversion funds themselves, but doing so reduces the amount that grows tax-free in the Roth.

How the IRS counts the conversion as income

When you convert, the financial institution holding your IRA sends you (and the IRS) a Form 1099-R. This form reports the amount you moved and flags it as a conversion. The amount appears on your tax return as ordinary income — taxed at your regular income tax rate, not at capital gains rates.

The IRS does not care whether you convert $5,000 or $50,000. The entire amount counts as income for that tax year. If you convert in December, it counts for that year's taxes. If you convert in January, it counts for the next year's taxes. The date the money actually lands in the Roth is what matters.

This is different from a withdrawal. When you later withdraw money from the Roth (after age 59½ and after holding the account five years), you owe no tax on that withdrawal. The conversion tax is a one-time event.

Basis: the part of your conversion that may not be taxed

If you contributed money to a traditional IRA using after-tax dollars — money you already paid income tax on — that portion has basis. Basis is not taxed again when you convert.

For example: you put $10,000 into a traditional IRA. $6,000 came from pre-tax contributions (your employer or you deducted it). $4,000 came from after-tax contributions (you paid tax on it already). When you convert the full $10,000, only $6,000 is taxable. The $4,000 basis is not taxed again.

Calculating basis requires tracking all your traditional IRA contributions across all accounts over many years. The IRS uses Form 8606 to record this. If you have made after-tax contributions, you will need to file Form 8606 with your tax return in the year you convert, even if you do not owe tax on the basis portion.

When to pay the tax and where the money comes from

You do not write a check to the IRS for the conversion tax. Instead, the tax is calculated when you file your return and added to your total tax bill for the year. You pay it the same way you pay all your income tax: through withholding from your paycheck, quarterly estimated tax payments, or a lump sum when you file.

Some people pay the conversion tax by withholding. If you have an employer, you can increase the withholding on your paycheck to cover the extra tax. This spreads the payment across the year. Others make quarterly estimated tax payments (Form 1040-ES) if they do not have an employer withholding.

You can also pay the tax from the conversion funds themselves. If you convert $50,000 and owe $12,000 in tax on it, you can take $12,000 out of the Roth to pay the IRS. This is legal, but it defeats part of the purpose: you end up with less money growing tax-free in the Roth. Most people pay the tax from other savings instead.

How a conversion affects your tax bracket and overall bill

The conversion amount is added to your other income for the year. If you earn $60,000 from your job and convert $30,000, the IRS treats you as having $90,000 in taxable income. This can push you into a higher tax bracket, meaning you pay a higher rate not just on the conversion but on some of your regular income too.

For example, in 2024, the 22% federal tax bracket for single filers ends at $89,075. If you earn $70,000 and convert $25,000, your total is $95,000. The last $5,875 of your income is taxed at 24% instead of 22%. This "bracket creep" means your total tax bill is higher than straightforward multiplying the conversion amount by your normal rate.

This is why people often plan conversions carefully. Converting a smaller amount one year, then a larger amount the next year, can keep you in a lower bracket. Doing a large conversion in a year when you have less other income (like after retirement) can also reduce the tax hit.

Pro-rata rule: when you have both pre-tax and after-tax IRAs

If you have multiple traditional IRAs — some with pre-tax money and some with after-tax money — the pro-rata rule applies. You cannot convert only the after-tax portion and leave the pre-tax portion behind. The IRS treats all your traditional IRAs as one pool.

When you convert, the taxable portion is calculated based on the ratio of pre-tax to after-tax money across all your accounts. If 80% of your total traditional IRA balance is pre-tax and 20% is after-tax, then 80% of any conversion is taxable.

This rule can create a large tax bill if you have significant pre-tax IRA balances. Some people use a "backdoor Roth" strategy to work around this: they convert pre-tax IRAs to a Solo 401(k) or employer plan (if their employer allows it), which removes them from the pro-rata calculation. This is legal but requires careful execution and documentation.

State income tax on conversions

Most states that have income tax treat Roth conversions the same way the federal government does: the conversion amount is taxable income in the year it occurs. You owe state tax on top of federal tax.

A few states do not have income tax (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming). If you live in one of these states, you owe only federal tax on the conversion.

If you move to a different state after converting but before filing your return, the state where you lived when the conversion happened is usually the one that taxes it. State tax rules vary, so if you are planning a large conversion and may move, check with a tax professional in your state.

Frequently Asked Questions

Can I undo a conversion if I change my mind about the tax bill?

You can reverse a conversion through a process called a recharacterization, but only under specific circumstances and within strict time limits. As of 2018, you can recharacterize only if you made a mistake in the conversion itself (like converting the wrong account). You cannot recharacterize straightforward because the tax bill was higher than you expected. If you recharacterize, the conversion is treated as if it never happened for tax purposes.

What if I convert in December but do not move the money until January?

The date the money actually moves into the Roth is what counts. If the funds do not land in the Roth until January, it is January's tax year that is affected, not December's. Confirm the exact date with your financial institution, because the timing can shift your tax bill to a different year.

Do I owe tax on the growth inside the Roth after I convert?

No. Once the money is in the Roth and you have paid tax on the conversion, all future growth is tax-free. Dividends, capital gains, and interest earned inside the Roth are never taxed, as long as you follow the withdrawal rules (age 59½ and five-year holding period).

What happens if I cannot afford to pay the tax bill?

You still owe the tax, but you have options for paying it. You can set up a payment plan with the IRS (Form 9465), pay in installments, or request a short-term extension. The IRS charges interest and penalties on unpaid tax, so paying as soon as possible is cheaper. A tax professional can help you explore payment options.

Does a conversion affect my Medicare premiums or Social Security taxes?

Yes. The conversion amount is counted as income, which can raise your Modified Adjusted Gross Income (MAGI). A higher MAGI can increase your Medicare Part B and Part D premiums. It can also affect whether you owe tax on Social Security benefits. If you are near Medicare age or collecting Social Security, a large conversion may have costs beyond the income tax itself.