Are Roth Conversions Taxable? Pro-Rata Rule and Reporting

Yes, Roth conversions are taxable. When you move money from a traditional IRA, SEP, SIMPLE, or 401(k) into a Roth IRA, the IRS treats the converted amount as a distribution and adds the taxable portion to your ordinary income for that year.¹ A $50,000 conversion adds $50,000 to your taxable income on top of wages, interest, and everything else. In exchange, future growth and qualified withdrawals from the Roth come out tax-free.

How Much of the Conversion Is Taxed

Whatever portion of the traditional account would have been taxable if you had simply withdrawn it is taxable when you convert. If every contribution was deductible, the full converted amount is ordinary income, because neither the contributions nor the earnings have ever been taxed.

Because the income stacks on top of your other earnings, part of a conversion can land in a higher marginal bracket than your regular income sits in. For 2026, a single filer enters the 24% bracket at $105,700 of taxable income; for married couples filing jointly, that bracket begins at $211,400.² A single filer earning $95,000 who converts $30,000 would see roughly $19,300 of that conversion taxed at 24% instead of 22%.

One piece of good news: the conversion itself does not trigger the 10% early withdrawal penalty, even if you are under 59½. The code carves out an explicit exception for amounts included in income because of a Roth conversion.³ You owe income tax, but no penalty on top of it.

The Pro-Rata Rule When You Have After-Tax Money

If some of your traditional IRA money came from nondeductible (after-tax) contributions, you cannot cherry-pick just that basis and convert it tax-free. Under the tax code, all of your traditional, SEP, and SIMPLE IRA balances are treated as a single pool for distribution purposes.⁴ Every dollar that leaves the pool carries a proportional mix of taxable and nontaxable money.

The math: divide your total nondeductible contributions across all traditional IRAs by the combined value of all those accounts. That percentage is the tax-free share of any conversion. Suppose you have $100,000 total across your traditional IRAs and $15,000 of that is nondeductible contributions. Convert $40,000 and $6,000 is tax-free while $34,000 is ordinary income.

This catches people attempting a “backdoor Roth.” If you make a $7,000 nondeductible contribution and then convert it while holding a $200,000 traditional IRA of entirely pre-tax money, the pro-rata rule spreads that basis across the whole pool. Nearly all of the $7,000 conversion ends up taxable.

The Five-Year Recapture Rule

The conversion escapes the 10% penalty, but pulling converted money back out of the Roth too soon can bring the penalty back. If you withdraw converted amounts within five tax years of the conversion and you are under 59½, the taxable portion of that conversion is hit with the 10% penalty.³

Each conversion runs its own five-year clock. A 2026 conversion is clear on January 1, 2031; a 2027 conversion is clear on January 1, 2032; the clocks are tracked independently.⁵

Roth withdrawals follow a strict ordering: regular contributions first (always tax- and penalty-free), then conversions on a first-in, first-out basis, then earnings. Within each conversion, the taxable portion comes out before the nontaxable portion.⁵ If regular contributions cover your withdrawal, the five-year rule never comes into play.

You Cannot Reverse a Conversion

Before 2018, you could recharacterize a Roth conversion and undo it, which was useful when the account dropped in value after conversion. The Tax Cuts and Jobs Act eliminated that option for conversions completed after December 31, 2017. Once you convert, the tax bill is locked in at the value on the conversion date, regardless of what the account does afterward.

Effects on Medicare Premiums and Social Security

Conversion income flows into your adjusted gross income, and AGI drives several calculations beyond the income tax bracket table.

Medicare Part B and Part D Surcharges

Medicare bases Part B and Part D premiums on modified adjusted gross income from two years prior. A large conversion in 2026 can increase your premiums in 2028. For 2026, a single filer with income above $109,000 begins paying an income-related monthly adjustment amount on top of the standard Part B premium; joint filers cross that first tier at $218,000. The surcharge climbs through several tiers, topping out at an extra $487 per month at income of $500,000 or more.⁶ Part D coverage carries its own surcharges on the same income tiers.

Taxable Share of Social Security

If you receive Social Security, conversion income can push more of those benefits into taxable territory. Up to 50% of benefits become taxable once combined income (AGI plus nontaxable interest plus half your Social Security) exceeds $25,000 for single filers or $32,000 for joint filers. Above $34,000 (single) or $44,000 (joint), up to 85% of benefits become taxable.⁷ Those thresholds have never been indexed for inflation, so even a modest conversion can shift the calculation.

Paying the Tax Without Shrinking the Conversion

The costliest mistake is paying the conversion tax from the wrong source. If you ask your IRA custodian to withhold taxes from the conversion, the withheld amount is treated as a distribution that never made it into the Roth. For someone under 59½, that withheld portion can trigger the 10% early withdrawal penalty.⁸ Even past 59½, withholding shrinks the amount that lands in the Roth. Convert the full amount and pay the tax from a separate checking or savings account.

For 401(k) money paid directly to you rather than transferred trustee-to-trustee, the plan is required to withhold 20% for federal tax.⁹ A direct trustee-to-trustee transfer avoids that entirely.

A large conversion can also create an estimated tax shortfall. You can avoid an underpayment penalty by paying at least 90% of the current-year tax liability, or 100% of last year’s tax (110% if your AGI exceeded $150,000).¹⁰ If you convert late in the year, a fourth-quarter estimated payment by January 15 is the cleanest fix.

Reporting the Conversion

Your IRA custodian sends Form 1099-R after the conversion year ends. It reports the total distribution and uses distribution code 2 (early distribution, exception applies) or code 7 (normal distribution) depending on your age. The 1099-R may not calculate the taxable amount when you have nondeductible basis; that part is your responsibility.

Form 8606

Form 8606 is where the taxable portion is worked out. The form tracks your cumulative nondeductible contributions and applies the pro-rata calculation.¹¹ You will need three figures:

Your total basis — every nondeductible contribution ever made to a traditional IRA, minus any basis already recovered through prior distributions or conversions.
The combined December 31 value of all your traditional, SEP, and SIMPLE IRAs, plus any outstanding rollovers.¹²
The total amount converted, from your 1099-R.

The form divides basis by total IRA value to produce the nontaxable percentage, then applies that percentage to the conversion. The rest is taxable. With zero nondeductible contributions the form is simple: the entire conversion is taxable and the basis lines are zero.

Form 1040

The completed Form 8606 is filed with your Form 1040. The total distribution from the 1099-R goes on the IRA distributions line, and the taxable amount calculated on Form 8606 goes on the adjacent line.¹¹ Keep a copy of every Form 8606 you file. The IRS sometimes lacks records of prior-year basis, and without your own copies you could end up paying tax on money you already paid tax on.

Deadlines

A Roth conversion must be completed by December 31 of the year you want it reported.¹ Unlike an IRA contribution, it cannot be backdated to the prior tax year at the April filing deadline. A conversion processed on January 3, 2027 belongs to tax year 2027 no matter what, so leave room for your custodian’s processing time before year-end.

Your return for the conversion year, with Form 8606 attached, is due April 15 of the following year. An extension gives you until October 15 to file, but does not extend the time to pay; interest accrues on any unpaid balance after April 15.

State Income Tax

Federal tax is only part of the bill. Most states with an income tax treat a Roth conversion the same way the IRS does and include the converted amount in state taxable income. A handful of states exempt all retirement income from state tax, and others offer partial exclusions that depend on age and amount. Check your state’s rules before a large conversion so the state return doesn’t produce a surprise.

1
Internal Revenue Service. Publication 590-A (2025), Contributions to Individual Retirement Arrangements (IRAs)
2
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
3
Office of the Law Revision Counsel. 26 U.S. Code 408A – Roth IRAs
4
Office of the Law Revision Counsel. 26 U.S. Code 408 – Individual Retirement Accounts
5
Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs)
6
Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles
7
Office of the Law Revision Counsel. 26 USC 86 – Social Security and Tier 1 Railroad Retirement Benefits
8
Internal Revenue Service. Topic No. 557, Additional Tax on Early Distributions from Traditional and Roth IRAs
9
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
10
Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
11
Internal Revenue Service. Instructions for Form 8606 (2025)
12
Internal Revenue Service. Form 8606 – Nondeductible IRAs