Roth Conversions: The Complete Guide

April 20, 2026

What is a Roth conversion?

A Roth conversion is a deliberate transfer of money from a pre-tax retirement account — a traditional IRA, 401(k), 403(b), or similar — into a Roth IRA. The converted amount is added to your ordinary income for the year, taxed at your marginal rate, and deposited into a Roth where it grows tax-free and comes out tax-free in retirement.

Nothing is penalized. Conversions don’t trigger the 10% early withdrawal penalty that normally applies to pre-59½ distributions from traditional accounts. The IRS treats a conversion as a taxable event but not a withdrawal. You’re prepaying tax, not pulling money out.

Why would anyone volunteer to pay tax sooner than required? Because the alternative — leaving the money in the traditional account — means paying tax on every future dollar of withdrawal, including decades of compounded growth, at whatever your tax rate happens to be when you finally take it out. If you have reason to believe your future tax rate will be higher than your current rate, converting now locks in the lower rate on a permanent basis.

The decision comes down to a single question: is my tax rate today lower than my tax rate will be in retirement? When the answer is yes, converting saves money. When the answer is no, it costs money. Everything else in Roth conversion planning is just detail on how to answer that question accurately for your specific situation.

When a Roth conversion makes sense

Three scenarios account for most of the conversion opportunity in real retirement plans.

1. The early-retirement low-income window

The years between the end of your working income and the start of Social Security are almost always the lowest-income years of your adult life. You’ve stopped earning a W-2 salary. Social Security hasn’t started. If you’re not yet 73, no RMDs are forcing taxable distributions. Your only income is whatever you choose to generate from taxable accounts — which, for most retirees, is a modest stream of dividends and long-term capital gains taxed at preferential rates.

This window creates room at the bottom of the bracket structure. For a married couple filing jointly in 2026, the 12% federal bracket runs from $24,801 to $100,800 of taxable income on top of a $32,200 standard deduction. That’s over $130,000 of total income a couple can generate while staying at 12% or below.

If your only other income is $20,000 of qualified dividends, you have roughly $113,000 of conversion room available before hitting the 22% bracket. Every dollar converted at 12% that would otherwise have been withdrawn at 22% or 24% is a real, permanent tax savings — not a timing difference.

This window typically lasts 3 to 7 years. It closes when Social Security starts, when RMDs begin at 73, or when other income sources come online. The math rewards people who use it aggressively.

2. The pre-RMD planning years

For retirees who claimed Social Security early and don’t have a long early-retirement runway, the second major window is ages 65 to 72 — after Medicare enrollment but before RMDs kick in at 73. During these years you still have control over taxable income. Once RMDs start, the IRS forces increasing taxable distributions every year, and your marginal rate tends to ratchet upward for the rest of your life.

Conversions in this window accomplish two things. First, they trade today’s lower rate for tomorrow’s higher rate on the same dollars. Second — and less obvious — they reduce your future RMD base. Every $100,000 you convert today is $100,000 that won’t be generating required distributions a decade from now. That’s smaller RMDs, smaller taxable income, smaller Medicare premiums, and fewer Social Security benefits subjected to tax.

The catch in this window is IRMAA — the Medicare surcharge that kicks in at higher income levels and uses a two-year lookback. A conversion in 2026 affects your 2028 Medicare premiums. Aggressive conversions without modeling the IRMAA tiers can wipe out much of the tax savings. More on this below.

3. Legacy and estate planning

If you expect to leave meaningful assets to heirs, the calculus changes. Under current law, non-spouse heirs must empty an inherited traditional IRA within 10 years, and every dollar they withdraw is taxed at their marginal rate — often during their peak earning years. Heirs inheriting a traditional IRA frequently face a higher tax rate on those distributions than you would have paid yourself.

An inherited Roth IRA carries the same 10-year empty-out requirement, but the distributions are tax-free. Converting traditional money to Roth during your lifetime, at your lower rate, is effectively paying tax on behalf of your heirs at a discount. For families where the next generation is in or approaching peak earning years, this can be a significant multi-generational tax savings.

This scenario is also the weakest justification for not converting. The argument “I’ll leave it to charity anyway, so conversion is wasted tax” only holds if your charitable bequest would consume the entire traditional balance. For mixed beneficiaries, every pre-tax dollar passed to individual heirs is a future tax liability you could have eliminated.

The math: a worked example

Consider a married couple, both 58, retired early. Their situation in 2026:

$900,000 in a traditional IRA
$100,000 in a Roth IRA
$200,000 in a taxable brokerage account generating $20,000/year in qualified dividends
No W-2 income, no Social Security yet, no pension

Before any conversion, their taxable income is $20,000 minus the $32,200 standard deduction — effectively zero. Their qualified dividends fall in the 0% long-term capital gains bracket. They owe no federal income tax.

They have enormous room to run conversions at low effective rates.

Option A: fill the 12% bracket.

To stay within the 12% bracket, they need taxable income at or below $100,800. With $20,000 of dividend income and a $32,200 standard deduction, they can convert up to $113,000 before crossing into 22%.

A $100,000 conversion produces:

Taxable income: $20,000 + $100,000 − $32,200 = $87,800
Federal tax: $24,800 × 10% + ($87,800 − $24,800) × 12% = $2,480 + $7,560 = $10,040
Effective rate on the converted $100,000: roughly 10%

Compare that to the likely rate when this couple is 75, drawing Social Security, taking RMDs, and sitting in the 22% or 24% bracket. The same $100,000 distribution would cost $22,000 to $24,000 in federal tax — and probably more once IRMAA and Social Security taxation are factored in.

The conversion saves $12,000 to $14,000 in permanent tax, not counting decades of tax-free Roth growth on the $100,000 after conversion.

Option B: fill the 22% bracket.

For couples with larger traditional balances and longer runways, filling the 22% bracket can still make sense if the future alternative is 24% or higher. The 22% bracket extends to $211,400 of taxable income in 2026. Running conversions to that ceiling for five years straight moves over a million dollars into the Roth structure at a blended marginal rate that’s still lower than the rate they’d face once Social Security and RMDs stack on top of each other.

The trade-off is real. At $211,400 of MFJ taxable income, the couple is bumping against several thresholds: the 0% long-term capital gains bracket ($96,700 for MFJ in 2026) is already blown through, the Net Investment Income Tax threshold at $250,000 of MAGI is within range, and in three years this income level starts affecting Medicare premiums. A single year of this doesn’t matter; a pattern of it compounds.

This is where modeling — not rule-of-thumb — earns its keep. The right conversion amount depends on your balance, your time horizon, your other income, and your realistic forecast of future rates. Scala was built to run exactly this math year by year across your planning horizon.

Key interactions

Roth conversions don’t live in isolation. Seven other rules and systems interact with conversion decisions, and ignoring any of them can turn a smart conversion into a costly one.

The five-year rule

Each Roth conversion starts its own five-year clock. If you’re under 59½ and you withdraw converted principal before five tax years have passed, the 10% early-withdrawal penalty applies to the conversion amount — even though no penalty applied when you did the conversion itself.

This is why the Roth conversion ladder works the way it does. Starting at age 54, converting $50,000 per year for five years, the first conversion becomes accessible penalty-free at age 59 — just as you’d be crossing 59½ anyway, but the ladder is the mechanism that bridges any gap between early retirement and standard retirement account access.

The five-year rule on conversions is separate from the five-year rule on Roth earnings (which requires the Roth to have been open for five years before earnings can be withdrawn tax-free after 59½). Both rules can apply at the same time; they’re measured independently.

IRMAA — the Medicare surcharge cliff

IRMAA is the income-related monthly adjustment that increases Medicare Part B and Part D premiums for higher earners. It’s a cliff, not a phase-in. One dollar over a threshold triggers the full surcharge. For 2026, a married couple pays no IRMAA at MAGI of $218,000 or less. At $218,001, each spouse pays an additional $95.70 per month in premiums — $2,297 per year for the couple. Cross the next threshold at $274,000 and the combined surcharge jumps to roughly $5,777 per year.

IRMAA uses a two-year lookback. Your 2026 MAGI determines your 2028 Medicare premiums. For anyone 63 or older, this means conversion planning needs to look two years out, not just the current year.

The interaction with conversions is direct: every dollar of conversion income counts toward MAGI, including tax-exempt interest. A conversion sized to fill the 22% bracket might push a couple past the first IRMAA tier without obvious warning. The surcharge often cancels out a meaningful share of the tax savings the conversion was trying to capture.

ACA subsidy interaction

For early retirees not yet on Medicare, the Affordable Care Act marketplace provides health coverage — and ACA subsidies are income-tested. Conversion income counts. A conversion that pushes MAGI above certain thresholds can reduce or eliminate premium tax credits, adding thousands of dollars in annual healthcare costs.

For most early-retiree couples, the ACA interaction is the binding constraint on conversion size between ages 55 and 65. The optimal conversion amount is often well below what the federal brackets alone would suggest.

The pro-rata rule

If you have both pre-tax money and after-tax (nondeductible) basis in any traditional IRA, the IRS treats all of your traditional IRA balances as a single pool for conversion purposes. You can’t pick which dollars to convert. Every conversion is pro-rated across your aggregate pre-tax and after-tax balances.

This is what makes the “backdoor Roth” strategy messy for people with existing large traditional IRA balances. It’s also why some higher-earners roll their traditional IRA into a 401(k) before attempting backdoor Roth contributions — 401(k) balances aren’t part of the pro-rata calculation.

The pro-rata rule is reported on IRS Form 8606 and is one of the most common sources of Roth conversion mistakes. Filling out Form 8606 correctly and keeping basis records across decades is tedious; getting it wrong means paying tax twice on the same money.

RMD reduction

Required minimum distributions start at age 73 for anyone born between 1951 and 1959, and at age 75 for those born in 1960 or later. RMDs are calculated as a fraction of your traditional IRA balance each year — roughly 3.8% at age 73, climbing above 5% by age 80 and past 8% by age 90.

For retirees with large traditional balances, RMDs are often the single largest source of tax liability in late retirement. Every dollar converted to Roth before age 73 is a dollar that isn’t in the RMD calculation base.

The compound effect matters. A couple with a $2 million traditional balance at age 73 faces roughly $76,000 in forced taxable distributions that year alone. If they’d converted $500,000 earlier at an average 15% rate, their RMD base is now $1.5 million, the forced distribution drops to $57,000, and the Medicare and Social Security tax consequences shrink with it.

State taxes

Federal conversion math is only half the picture. States treat Roth conversions differently:

No-tax states (Florida, Texas, Tennessee, Washington, and others) tax conversions at 0% at the state level. These states are the best conversion environments.
Flat-rate states (Pennsylvania, Illinois, Michigan, and others) add a state rate on top of the federal rate, but the rate doesn’t escalate with income, making large conversions less punishing.
Progressive-rate states (California, Oregon, New York, and others) can push combined federal-plus-state rates above 40% on aggressive conversions. The conversion math has to clear a much higher bar to make sense.

Some retirees time large conversions to coincide with a move to a lower-tax state. This requires actual domicile change, not just spending more time there, and the rules are well-litigated. But the difference between converting $200,000 in California versus Texas is often $18,000 to $20,000 in state tax — not a rounding error.

The conversion ladder

The Roth conversion ladder is a structured multi-year plan: convert a consistent amount from traditional to Roth each year, wait five years, then withdraw the aged conversions penalty-free. Used by FIRE practitioners to bridge the gap between early retirement and age 59½, the ladder converts the “I need access to my 401(k) money before 59½” problem into a mechanical, well-defined sequence.

It requires five years of runway before the first conversion becomes accessible — so planning starts in the final working years, not after retirement. The mechanics are straightforward; the execution is a long-term discipline.

Try Scala

Model your Roth conversion strategy

Scala runs your conversion plan year by year across the full planning horizon. Enter your balances, your expected income sources, and your target retirement age — Scala shows you how much to convert each year, where the IRMAA and ACA thresholds fall, and what the lifetime tax difference looks like compared to doing nothing.

Open Scala →

Frequently asked questions

Is there a limit on how much I can convert in a year?

No. Unlike contributions, Roth conversions have no annual dollar limit. You can convert any amount from a traditional IRA or pre-tax 401(k) to a Roth in a single year. The practical limit is whatever keeps your conversion in a marginal tax bracket that makes sense given your future expected rate.

Will I owe a 10% early withdrawal penalty on a conversion before age 59½?

No. Conversions are not distributions, and no early withdrawal penalty applies at the time of conversion — regardless of age. However, if you then withdraw the converted principal within five years and before age 59½, the 10% penalty applies retroactively to the withdrawal. Each conversion has its own five-year clock.

Can I convert my 401(k) directly to a Roth IRA?

Yes, if your 401(k) plan allows in-service rollovers or if you've separated from the employer. You can also do a direct rollover from a 401(k) to a traditional IRA first, then convert from that traditional IRA to a Roth. Many plans also offer in-plan Roth conversions that move money from the pre-tax 401(k) side to a Roth 401(k) side without leaving the plan.

Do Roth conversions count toward Social Security taxation?

Yes. Conversion income is included in the formula that determines how much of your Social Security benefits are taxable. For retirees already collecting Social Security, a large conversion can push up to 85% of their benefits into taxable income, adding to the effective cost of the conversion.

Can I undo a Roth conversion if I change my mind?

No. Recharacterizations — the ability to reverse a conversion — were eliminated by the Tax Cuts and Jobs Act of 2017. Once a conversion is completed, it's permanent. This makes careful planning before the conversion critical, since there's no safety net after the fact.

Does a Roth conversion affect my ACA premium tax credit?

Yes. Conversion income is part of your Modified Adjusted Gross Income, which is what the ACA uses to calculate premium tax credits. A large conversion can reduce or eliminate subsidies for that year, sometimes costing thousands in additional health insurance premiums. For pre-Medicare retirees on marketplace coverage, the ACA interaction often constrains conversion size more than federal brackets do.

When is the deadline to complete a Roth conversion for a given tax year?

December 31 of that tax year. Unlike IRA contributions, which can be made until the tax filing deadline in April, conversions must be completed inside the calendar year to count for that year's taxes. This is why conversion planning intensifies in Q4.

How do I pay the tax on a Roth conversion?

The best approach is to pay the tax from outside the converted account — usually a taxable brokerage or savings account. Paying tax from the converted amount itself reduces how much ends up in the Roth and, if you're under 59½, can trigger the 10% penalty on the portion withheld for taxes. Estimated quarterly payments or safe-harbor withholding are both acceptable methods for actually remitting the tax.

Can I convert inherited IRA money to a Roth?

Generally no. Non-spouse beneficiaries cannot convert an inherited traditional IRA to a Roth IRA. Spousal beneficiaries who treat the inherited IRA as their own can convert, subject to the standard conversion rules. This is one of the reasons lifetime conversion planning matters — once you die, the opportunity largely closes.

Should I convert if tax rates might go down in the future?

Only if your personal tax rate — not the general rate structure — is expected to be lower. For most retirees, personal rates rise during retirement as Social Security, RMDs, and pension income stack up, even when general rates fall. But if you expect a specific low-income year ahead (a sabbatical, a business loss, a gap year), delaying a conversion to that year can make sense.

What is the pro-rata rule and why does it matter?

If you have both pre-tax money and after-tax basis across any of your traditional IRAs, the IRS treats all traditional IRA balances as a single pool. Every conversion is pro-rated across pre-tax and after-tax proportionally — you can't isolate just the after-tax portion. This is why the backdoor Roth strategy is complicated for anyone with a large existing traditional IRA balance.

Are state taxes on Roth conversions the same as federal?

No. States vary enormously. Some states (Florida, Texas, Tennessee, Washington) have no income tax, so conversions are taxed only at the federal level. Others (California, Oregon, New York) tax conversions at progressive state rates that can add 9% to 13% on top of federal. Your state of domicile at the time of conversion determines which rules apply.

Sources

Chris Gammill is the founder of Ignis Tools and writes about tax-aware retirement planning. Research and drafting assisted by AI tools; all figures and claims verified by the author against primary sources.

IRS Revenue Procedure 2025-32 — 2026 inflation adjustments — retrieved 2026-04-20
Kiplinger — 2026 IRMAA brackets and surcharges — retrieved 2026-04-20
Tax Foundation — 2026 tax brackets and federal income tax rates — retrieved 2026-04-20
IRS — Publication 590-A, Contributions to Individual Retirement Arrangements — retrieved 2026-04-20
IRS — Publication 590-B, Distributions from IRAs — retrieved 2026-04-20