Yes, you can convert a Traditional IRA to a Roth IRA, but you will owe income tax on the money you move

A Roth conversion means moving money from a Traditional IRA into a Roth IRA. The IRS allows this at any time, regardless of your age or income. The catch: you pay ordinary income tax on the amount you convert in the year you do it, as if that money were regular salary.

The reason people do this is to lock in tax-free growth going forward. Once the money is in the Roth, you never pay tax on the earnings again — and you can withdraw it tax-free in retirement. For some people, paying tax now to avoid it later makes financial sense. For others, it does not.

The conversion itself is straightforward: you contact your IRA custodian (the bank or brokerage holding your account) and ask them to move the funds. They handle the paperwork. You then report the conversion on your tax return the following year.

Key Takeaways

  • You can convert any amount from a Traditional IRA to a Roth IRA at any time, with no income or age limits.
  • You owe federal income tax on the full amount converted in the year you do it, calculated at your ordinary tax rate.
  • Some states tax Roth conversions as income; others do not, so check your state's rules before converting.
  • If you have multiple Traditional IRAs, SEP IRAs, or straightforward IRAs, the IRS treats them as one account for tax purposes when you convert.
  • You have until October 15 of the year after the conversion to undo it (called a recharacterization), though this option is limited.

How the tax bill works when you convert

When you convert $50,000 from a Traditional IRA to a Roth, the IRS treats that $50,000 as taxable income for that year. If you are in the 24% federal tax bracket, you owe roughly $12,000 in federal tax. If your state taxes income, you owe state tax on top of that.

The tax is not withheld automatically. You either pay it out of pocket when you file your return, or you can ask your IRA custodian to withhold a portion of the conversion amount to cover estimated taxes. Many people pay the tax from a separate bank account rather than taking it from the IRA itself — that way, more money stays invested in the Roth.

The amount of tax you owe depends on your total income that year. A conversion can push you into a higher tax bracket, which means you might pay more tax on the conversion than you would have if you converted in a lower-income year. This is why some people convert in years when they have less income, such as after retirement or between jobs.

The pro-rata rule: why having a Traditional IRA and a Roth matters

If you have both a Traditional IRA and a Roth IRA, and you convert part of the Traditional IRA, the IRS does not let you pick which dollars to convert. Instead, it applies the pro-rata rule.

Here is how it works: suppose you have a Traditional IRA with $40,000 in pre-tax contributions (money you deducted when you contributed it) and $10,000 in after-tax contributions (money you did not deduct). You also have a Roth IRA with $50,000. You want to convert $10,000 from the Traditional IRA — the after-tax portion — to avoid paying tax.

The pro-rata rule says no. The IRS treats all your Traditional IRAs, SEP IRAs, and straightforward IRAs as one big account. Of that $50,000 total, 80% is pre-tax ($40,000 ÷ $50,000) and 20% is after-tax ($10,000 ÷ $50,000). So when you convert $10,000, the IRS says 80% of it — $8,000 — is taxable, and only 20% — $2,000 — is tax-free.

This rule catches many people off guard. If you have a large Traditional IRA balance, converting becomes expensive because most of it is pre-tax money. Some people work around this by rolling a Traditional IRA into a workplace 401(k) plan (if their plan allows it), which removes it from the pro-rata calculation. Then they convert the remaining smaller Traditional IRA balance.

When a conversion makes sense

A conversion is most useful if you expect to be in a lower tax bracket now than in retirement. This happens when you retire early, take a year off work, or have a year with unusually low income. You pay tax at a lower rate now, and then the money grows tax-free forever.

A conversion can also make sense if you expect tax rates to rise in the future. If you believe federal tax rates will be higher when you retire, paying tax now at today's rates locks in a lower cost.

Conversions are also useful for people who want to leave money to heirs. Roth IRAs have no required minimum distributions during your lifetime, so the account can keep growing. When you pass it to heirs, they inherit tax-free growth (though they do have to withdraw the money within ten years under current rules).

A conversion does not make sense if you are in a high tax bracket now and expect to be in a lower one in retirement. You would straightforward be paying more tax than necessary.

State taxes on conversions

Federal tax is only part of the bill. Some states tax Roth conversions as ordinary income. Others do not tax them at all.

States that tax conversions include California, New York, Vermont, and others. If you live in one of these states, a $50,000 conversion might trigger both federal and state income tax. States that do not tax conversions include Florida, Texas, Washington, and others. If you are considering a conversion and live near a state border, it is worth checking your state's rules — the difference can be thousands of dollars.

A few states have special rules. Some tax conversions only if you are a resident at the time of conversion. Others have changed their rules in recent years. Your tax preparer or your state's revenue department can tell you what applies to you.

The mechanics: how to actually do a conversion

Contact the financial institution that holds your Traditional IRA — your bank, brokerage, or investment firm. Ask them for a conversion form or tell them you want to do a direct trustee-to-trustee transfer to a Roth IRA.

You have two options. A direct conversion means the custodian moves the money straight from your Traditional IRA to your Roth IRA. You never touch it. A rollover conversion means the custodian sends you a check, and you deposit it into a Roth IRA within 60 days. The direct method is simpler and avoids the risk of missing the important date.

The custodian will ask which Traditional IRA account to convert from and which Roth IRA account to convert to. If you do not have a Roth IRA yet, you can open one at the same institution before the conversion, or the custodian can help you set one up as part of the process.

The conversion is reported on Form 8606, which you file with your tax return the following year. Your custodian will send you a Form 1099-R showing the conversion amount. You use that form to fill out Form 8606 correctly.

What happens if you change your mind

You can undo a conversion, but only under specific conditions and only within a limited time frame. This is called a recharacterization.

You have until October 15 of the year after the conversion to recharacterize. So if you convert in 2024, you can undo it by October 15, 2025. You contact your custodian and ask them to move the money back to a Traditional IRA. You then file an amended tax return (Form 1040-X) to remove the conversion from your income.

People recharacterize when the market drops after they convert. If you convert $50,000 and the account drops to $40,000 before you recharacterize, you can move that $40,000 back to a Traditional IRA. You still owe tax on the original $50,000 you converted, but you avoid paying tax on money you no longer have.

Recharacterizations are less common now than they used to be, because the rules changed in 2018. You can only recharacterize once per year, and you cannot do a series of conversions and recharacterizations to game the system. Still, the option exists if you need it.

Frequently Asked Questions

Do I have to convert my entire Traditional IRA at once?

No. You can convert part of it and leave the rest in the Traditional IRA. You can also do multiple partial conversions in different years. This flexibility lets you spread the tax bill across several years if you want to stay in a lower bracket.

What if I have a 401(k) from an old job — can I convert that to a Roth?

You can convert a 401(k) to a Roth, but only if you have already left that job. While you are still employed, most plans do not allow it. Once you leave, you can roll the 401(k) into a Traditional IRA first, then convert to a Roth. The same pro-rata rule applies, so check whether you have other Traditional IRAs first.

Will a conversion hurt my Social Security benefits?

A Roth conversion counts as income for the year you do it, which could affect your Social Security taxes if you are still working. It does not affect your Social Security benefit amount itself. If you are already receiving Social Security, a conversion might trigger taxation of your benefits if your combined income crosses a certain threshold. Discuss this with a tax preparer if you are close to that threshold.

Can I convert if I am over 70 and a half?

Yes. There is no age limit on conversions. You can convert at any age. However, if you are over 73 and have a Traditional IRA, you must take a required minimum distribution that year before you convert. The RMD cannot be converted.

What if the market drops right after I convert?

You still owe tax on the amount you converted, even if the account value drops. This is one reason people recharacterize — to undo the conversion and avoid paying tax on money that is no longer there. You have until October 15 of the following year to decide whether to recharacterize.