Traditional IRA to Roth IRA Conversion: How It Works and What to Weigh

A conversion, often called a Roth conversion, moves all or part of a traditional IRA balance into a Roth IRA. The IRS describes three ways to do it: a rollover, where a distribution is paid to the owner and contributed to a Roth IRA within 60 days; a trustee-to-trustee transfer to a Roth IRA at a different institution; or a same-trustee transfer when both accounts are held at one institution. A conversion can be partial, so the owner chooses how much to move. Source: IRS, Retirement plans FAQs regarding IRAs, reviewed October 5, 2026.

A Roth IRA follows most of the rules that apply to a traditional IRA, with important differences. Contributions to a Roth IRA are not deductible, qualified distributions can be tax-free when the requirements are met, and contributions can continue after age 70½. Source: IRS, Roth IRAs, reviewed October 5, 2026. This article describes federal rules in general terms and does not decide whether a conversion fits any person's situation.

The IRS states that a conversion results in taxation of any untaxed amounts in the traditional IRA. Those amounts, such as deductible contributions and investment earnings, are generally included in gross income and taxed as ordinary income, normally for the tax year of the conversion. A part that is a return of nondeductible contributions (basis) is not included. When a conversion is properly rolled over, the 10% additional tax on early distributions does not apply to the conversion itself. Sources: IRS, Retirement plans FAQs regarding IRAs and IRS Publication 590-A (2025), both reviewed October 5, 2026.

Because the added income lands in one tax year, Publication 590-A notes that an owner who must include an amount in gross income may need to increase withholding or make estimated tax payments. The conversion is reported on Form 8606.

Basis is not applied to a single account. Form 8606 uses the total value of all of a person's traditional IRAs as of December 31 of the year, plus outstanding rollovers, and the form treats traditional SEP and SIMPLE IRAs as traditional IRAs. The nontaxable share of a conversion is based on the ratio of basis to the combined total reported on the form, which is often called the pro-rata rule. Illustrative only, not tied to any person: if 10% of the combined value reported on the form were basis, about 10% of a conversion would be nontaxable, regardless of which account the money came from. Sources: IRS, Instructions for Form 8606 (2025) and 2025 Form 8606, reviewed October 5, 2026. The calculation for a specific year should be confirmed with a qualified tax professional.

Tax year. A conversion is normally reported for the year it is completed. As of October 5, 2026, a conversion completed during 2026 would be reported on the 2026 return, so the completion date rather than the decision date determines the year. Institutions differ in how long transfers take. Source: IRS Publication 590-A (2025), reviewed October 5, 2026.

No reversal. A conversion of a traditional IRA to a Roth IRA made in tax years beginning after December 31, 2017 cannot be recharacterized, meaning it cannot later be treated as a contribution to a traditional IRA. The IRS distinguishes this from regular annual contributions, which may still be recharacterized under the rules in Publication 590-A. The practical effect is that the tax on a conversion cannot be unwound if the account value later falls or the tax bill is larger than expected. Sources: IRS, Instructions for Form 8606 (2025) and IRS, Retirement plans FAQs regarding IRAs, reviewed October 5, 2026.

Required distributions. Amounts that must be distributed from a traditional IRA for a particular year under the required minimum distribution rules cannot be converted. Source: IRS Publication 590-A (2025), reviewed October 5, 2026. Publication 590-B explains how required distributions are calculated.

Two separate five-year periods. First, earnings in a Roth IRA are generally tax-free as a qualified distribution only if five tax years have passed since the first Roth IRA contribution and the distribution is made on or after age 59½, because of disability, to a beneficiary or estate after death, or for a qualifying first-home purchase (up to a $10,000 lifetime limit). Second, each conversion has its own five-year period that starts on January 1 of the conversion year. For an owner under age 59½, withdrawing converted amounts that were taxed within that period may trigger the 10% additional tax on early distributions unless an exception applies. The two periods are determined separately and are not necessarily the same. Source: IRS Publication 590-B (2025), reviewed October 5, 2026.

No single factor decides whether a conversion fits a household. The items below are commonly reviewed together, and each carries a cost or limit alongside any potential benefit.

Current and future tax rates. A conversion adds taxable income now in exchange for potentially tax-free qualified withdrawals later. Whether that trade works in a household's favor depends partly on taxable income and tax rates in the conversion year compared with income and rates in later years. Future income and tax law are uncertain, and if later rates turn out to be lower than the rate paid on the conversion, the trade may not have helped.

Paying the tax from outside the IRA. Publication 590-A notes that the part of a withdrawal that is kept instead of rolled into the Roth IRA is generally taxable and may be subject to the 10% additional tax on early distributions. Using IRA money to pay the tax on a conversion therefore reduces the amount that moves into the Roth IRA and may add tax. Using money from outside the IRA keeps more in the Roth account, but it reduces the cash available for other needs, which is a loss of liquidity. Source: IRS Publication 590-A (2025), reviewed October 5, 2026.

Time horizon and access to the money. Because of the five-year periods described above, funds that may be needed within a few years can face additional tax or lose the tax-free treatment of earnings. A longer time horizon may reduce that concern, but it cannot be assumed to remove it.

Required minimum distributions. The IRS notes that required minimum distributions are not required for a Roth IRA. Converting reduces the traditional IRA balance on which future required distributions are calculated, which may matter for a household that expects those distributions to be larger than it needs. The cost is the tax paid now on the converted amount. Source: IRS, Retirement plans FAQs regarding IRAs, reviewed October 5, 2026.

Medicare premiums. The Social Security Administration adds an income-related monthly adjustment amount (IRMAA) to Medicare Part B and prescription drug coverage premiums for higher-income beneficiaries. It uses the most recent federal tax return the IRS provides, generally from two years earlier, and measures income as modified adjusted gross income (adjusted gross income plus tax-exempt interest). A taxable conversion increases adjusted gross income for the year it occurs, so it can raise income used for premiums set two years later. Income thresholds change, so check the current figures. Source: Social Security Administration, Premiums: Rules for Higher-Income Beneficiaries, reviewed October 5, 2026.

Taxation of Social Security benefits. The IRS explains that benefits are not taxable unless modified adjusted gross income plus one half of the benefits received in the year is more than the base amount for the filing status. Conversion income that raises modified adjusted gross income can increase the portion of benefits that is taxed in that year. Source: IRS, Topic no. 423, reviewed October 5, 2026.

State income tax. The Texas Comptroller reports that Texas has no state income tax, so a conversion by a Texas resident is not taxed by the state, although federal tax still applies. Residents of other states, or people who move, should review their own state's rules. Source: Texas Comptroller, Texas is open for small business (December 2025), reviewed October 5, 2026.

Some households review conversions in years when taxable income is lower than usual, such as a gap between employment and the start of benefits or required distributions, or a year with a business loss. In such a year, additional income may be taxed at a lower rate than it would be in other years, which is why the idea is discussed. It is a general consideration and not a recommendation. Current-year tax is still due, income that is lower this year may be higher later, tax law can change, and a lower-income year for one household may not be favorable for another.

Because a conversion can be any amount, some households convert in portions across several tax years instead of one large amount. This can spread taxable income across years. It also creates a separate five-year period for each conversion, adds record keeping, and still leaves the household exposed to future changes in tax law. Whether a staged approach is appropriate depends on individual circumstances and should be reviewed with a qualified tax professional.

Benefit: qualified distributions from a Roth IRA can be tax-free. Cost or limit: the converted amount is generally taxed now, and tax-free treatment of earnings depends on the five-tax-year period and a qualifying event described above.

Benefit: a Roth IRA owner is not required to take minimum distributions during their lifetime. Cost or limit: tax is paid in advance on the converted amount, using cash that is then unavailable for other purposes, and the tax cannot be reversed after the conversion.

Benefit: contributions to a Roth IRA can continue after age 70½. Cost or limit: contributions are not deductible and may be limited by filing status and modified adjusted gross income. Source: IRS, Roth IRAs, reviewed October 5, 2026.

Benefit: a Roth IRA adds another tax treatment among a household's accounts, which can give more flexibility in how withdrawals are sourced. Cost or limit: flexibility has no value if the funds are needed before the rules allow tax-free access, and a conversion can increase income-based costs such as Medicare premiums and the taxable share of Social Security benefits.

1. List every traditional, SEP, and SIMPLE IRA and their December 31 values, and identify any nondeductible contributions already reported on Form 8606. 2. Estimate taxable income for the year with and without the conversion, including how much of the conversion would be taxable under the pro-rata calculation. 3. Identify where the tax would be paid and whether paying it from outside the IRA is possible without straining cash reserves. 4. Confirm whether a required minimum distribution applies for the year, since that amount cannot be converted. 5. Review the time horizon, the five-year periods, and any expected need for the funds. 6. Check the possible effect on Medicare premiums two years later and on the taxable share of Social Security benefits. 7. Confirm the institution's process and completion date, and remember a completed conversion cannot be recharacterized. 8. Review state tax rules if you live or may move outside Texas.

This checklist is educational and does not determine whether a conversion is appropriate for an individual household. Results depend on individual circumstances, and tax rules can change.

A conversion decision involves retirement income, taxes, and cash flow at the same time. The retirement planning page describes how Ankerstar Wealth approaches retirement income, Social Security and Medicare timing, and tax and retirement income strategies. The tax planning page describes tax planning services coordinated with the firm's in-house CPA. For a wider view of how these decisions fit together, see the firm's financial planning page and the financial literacy guide.

The calculators page offers estimation aids that can help organize assumptions before a conversation. A calculator result is an estimate based on the inputs entered, not a prediction and not a complete personal plan.

This article is educational. It does not provide individualized tax, legal, or investment advice, and results depend on individual circumstances and current law. Consult a qualified tax professional before acting.