Roth conversion basics

The short answer

You take a distribution from a traditional, SEP or SIMPLE IRA and roll it into a Roth IRA, either by direct trustee-to-trustee transfer or within 60 days of receiving it. The IRS treats a conversion as a rollover, and you must include in gross income the amount you would have owed tax on had you simply withdrawn it (IRS Publication 590-A). There is no income limit on converting and no dollar cap, unlike the 2026 Roth IRA contribution phase-out of $153,000 to $168,000 for single filers and $242,000 to $252,000 for joint filers (IRS).

Three things you cannot do: convert a required minimum distribution, undo a conversion once it is done (recharacterization of conversions was repealed), or convert without a plan for paying the tax.

The mechanics, step by step

1. Open the Roth IRA first, at the same custodian if possible, which makes the transfer a same-trustee redesignation.
2. Decide the dollar amount before you transfer, not after. The amount is what drives your bracket, IRMAA exposure and credits.
3. Request a direct conversion. Pub 590-A allows a 60-day indirect rollover too, but a direct transfer avoids withholding traps and the one-rollover-per-year limitation.
4. Elect zero withholding and pay the tax through an estimated payment or increased paycheck withholding instead.
5. Invest the Roth in your highest-expected-return assets, since this is the account with no future tax on growth.
6. File Form 8606 for the year of conversion to report the conversion and track any nondeductible basis. Your custodian will send a 1099-R coded for the distribution and a 5498 showing the Roth contribution.

Roth IRAs have no required minimum distributions during the owner's lifetime, which is a core part of the appeal; traditional IRAs and 401(k)s generally require distributions starting at age 73 (IRS).

Bracket filling with 2026 numbers

Bracket filling means converting exactly enough to reach the top of a target bracket and not one dollar more. The 2026 figures you need, from the IRS inflation adjustments: standard deduction of $16,100 for single filers and $32,200 for married couples filing jointly, with the brackets below (IRS).

The gross-income column simply adds the $32,200 joint standard deduction to the top of each taxable-income band, which is how you should think about the conversion decision. A retired couple aged 66 with $40,000 of pension and interest income has $7,800 of taxable income after the standard deduction. Converting $93,000 fills the 12% bracket exactly, at a cost of roughly $11,160 in federal tax, an effective rate near 12%.

Compare that with what happens if they do nothing. If their traditional IRAs hold $1.6 million and grow at 6% for seven more years, they enter RMDs at 73 with about $2.4 million, and a first-year distribution near 3.8% of that balance is roughly $91,000 of income they cannot avoid, stacked on top of Social Security. That is 22% territory and often 24%. Converting at 12% to avoid 22% later is a durable 10-point spread on every converted dollar.

• Convert to the top of a bracket, not through it. Do the final conversion in December when the year's income is knowable.
• Watch the interaction with Social Security. Additional income can also increase the taxable share of benefits, which raises the effective rate above the nominal bracket.
• Check capital gains stacking. A conversion pushes long-term gains and qualified dividends up through the 0%, 15% and 20% rate brackets, sometimes taxing gains that were free.
• Mind state income tax. A conversion is state taxable in most states. Nine states have no wage or broad income tax, which changes the math substantially.

IRMAA cliffs: the surcharge that hides two years out

Medicare premiums are income-tested, and the test is a cliff rather than a phase-in. One dollar over a threshold moves you to the next tier for the entire year. The 2026 surcharges use modified adjusted gross income from your 2024 return, and about 8% of enrollees pay them (CMS).

Read the last column carefully. A married couple who converts $1,000 too much and crosses the first joint threshold pays roughly $2,296 in extra Medicare premiums for the year across both spouses, an effective marginal rate on that $1,000 of well over 100%. Two implications: conversions completed before age 63 never touch IRMAA, because the surcharge look-back is two years; and after 63, every conversion needs a hard MAGI ceiling, not a soft target.

The pro-rata rule and nondeductible basis

If you have ever made a nondeductible traditional IRA contribution, you have basis, and Pub 590-A defines it as the sum of nondeductible contributions minus any previously distributed nondeductible amounts, recovered by filing Form 8606 for the year of a distribution. You cannot choose to convert only the basis. The taxable portion is computed proportionally across all of your traditional, SEP and SIMPLE IRA balances combined.

Worked example. You hold $180,000 in a rollover IRA plus a $20,000 traditional IRA that is entirely nondeductible basis, so total balances are $200,000 and basis is 10%. Convert $20,000 and only $2,000 comes across tax-free; $18,000 is ordinary income. The remaining basis stays in the IRA proportionally for future years.

Two planning consequences

• The backdoor Roth is only clean if you have no other pretax IRA money. A large rollover IRA makes each nondeductible contribution mostly taxable on conversion.
• A 401(k) can rescue the math. Employer plan balances are not counted in the pro-rata calculation, so rolling a pretax IRA into an active 401(k) that accepts roll-ins can shrink the denominator to near zero. Our 401(k) rollover guide covers the direction that decision should run.

The two five-year rules

People conflate these constantly. They are separate clocks with separate consequences, both described in Publication 590-B (IRS).

Rule 1: the qualified-distribution clock

A Roth distribution is qualified, meaning entirely tax-free including earnings, only if it is made after the five-year period beginning with the first tax year you made any contribution to a Roth IRA, and it is made on or after age 59 and a half, because of disability, to a beneficiary after death, or for a first home purchase up to a $10,000 lifetime limit. This clock runs once per person, not per account.

Rule 2: the per-conversion clock

A separate five-year period applies to each conversion or plan-to-Roth rollover, beginning on January 1 of the tax year in which the conversion was made. Withdraw the converted amount inside that window and the 10% additional tax can apply to the portion that was taxable on conversion, even though you already paid income tax on it. Pub 590-B gives the example of a conversion made on February 25, 2025, whose clock starts January 1, 2025.

Practical translation: a conversion done in December 2026 is penalty-clean on January 1, 2031, and a conversion done in January 2027 is not clean until 2032. If you are over 59 and a half, the per-conversion penalty clock is irrelevant to you. If you are 52 and building an early-retirement ladder, it is the entire design.

The conversion window between retirement and RMDs

For most households there is a stretch of unusually low taxable income that opens the year wages stop and closes when required distributions and delayed Social Security begin. Retire at 62, delay Social Security to 70, and RMDs start at 73: that is up to eight years of near-total control over your reported income, and eleven years before RMDs force the issue.

Two extra reasons to use the window. A surviving spouse files as single, where the 22% bracket starts at just $50,400 of taxable income in 2026 versus $100,800 jointly, so converting while both spouses are alive protects the survivor. And heirs who inherit a traditional IRA are generally subject to a ten-year distribution requirement, often during their peak earning years, while an inherited Roth arrives without an income tax bill.

When not to convert

• Your bracket now is higher than your expected bracket later. Converting at 24% to avoid 22% is a paid loss. Peak-earning years are usually the wrong years.
• You would pay the tax from the IRA and you are under 59 and a half. The withheld amount is itself a taxable distribution, often with the 10% additional tax on top.
• You are buying ACA marketplace coverage. Conversion income is counted in the household MAGI that sets your premium tax credit. See our ACA subsidies guide before converting in a pre-Medicare year.
• You are within two years of Medicare or already on it, and the conversion crosses an IRMAA tier. Crossing the first joint threshold costs a couple roughly $2,296 for the year.
• You plan to leave the IRA to charity or use qualified charitable distributions. A charity receives a traditional IRA tax-free, so converting first wastes the tax you paid.
• Your heirs are in low brackets and you are in a high one. If the eventual tax rate on the money is lower than yours, prepaying is a transfer to the Treasury.
• You will need the converted money within five years and are under 59 and a half. The per-conversion clock exposes you to the 10% additional tax.
• A big deduction or credit is in play this year. Conversions can phase out education credits, the qualified business income deduction and other income-tested items.

The final test is boring and reliable: convert when the rate you pay today is meaningfully below the rate you expect the same dollars to face later, including the survivor and heir scenarios, and when you can pay the tax from outside the account. If both are true, convert in measured annual slices rather than one large event. If either is false, wait.

PolicySherpas advisory services are offered through a registered investment adviser, and nothing on this page is individualized investment, tax, or legal advice. Tax outcomes depend on your full return and on state law, so confirm any conversion with your CPA before you execute it.