How to Avoid or Reduce Taxes on a Roth IRA Conversion

There is no way to convert a Traditional IRA to a Roth without paying income tax on the pre-tax dollars you move. But how much you pay is largely in your hands. The practical answer to how to avoid taxes on a Roth IRA conversion is really about reducing them: convert in years when your other income is low, size each conversion to stop at the top of a favorable tax bracket, pair the conversion with deductions or capital losses, isolate any after-tax basis before you convert, and watch for hidden costs like Medicare surcharges and state income tax.

The IRS adds the taxable portion of a conversion to your ordinary income for the year. A $100,000 conversion stacked on a $75,000 salary is taxed as though you earned $175,000.¹ There is no capital gains rate here and no exclusion. Everything below flows from that one fact.

Convert in Low-Income Years

Federal tax rates are progressive, so a conversion done in a lean year fills your lower brackets first. For 2026, a married couple filing jointly pays 10% on the first $24,800 of taxable income after the standard deduction and 12% on income up to $100,800.² If a couple has only $40,000 in other taxable income, they could convert roughly $60,000 and keep the entire conversion inside the 12% bracket. The same conversion during a working year with $200,000 in salary starts getting taxed at 24%, roughly double the cost.

The best windows tend to be a gap between jobs, a sabbatical, a year with large business losses, and especially the early retirement years before Social Security starts and before required minimum distributions begin at age 73.³ Once RMDs and Social Security land on your return, your baseline income climbs and the cheap bracket space disappears.

Spread Conversions Across Several Years

A single large conversion can push you into the 32% or 35% bracket. Splitting the same balance across five or ten years and topping off a target bracket each year keeps every converted dollar taxed at a rate you chose in advance.

The 2026 taxable-income brackets for married couples filing jointly are:²

10% up to $24,800
12% from $24,801 to $100,800
22% from $100,801 to $211,400
24% from $211,401 to $403,550
32% from $403,551 to $512,450
35% from $512,451 to $768,700
37% above $768,700

The 2026 standard deduction is $32,200 for joint filers and $16,100 for single filers. Say a joint-filing couple has $150,000 in taxable income, putting them in the 22% bracket. The 24% bracket begins at $211,400, so about $61,400 of room remains. Converting exactly that amount keeps every converted dollar at 22%. Recalculate the following year, because wages, investment income, Social Security, and RMDs all shift the space available.

Pair the Conversion with Deductions and Capital Losses

Anything that reduces your taxable income in the same year reduces the effective rate on the conversion.

Realized capital losses on investments in a taxable brokerage account offset capital gains dollar for dollar, and excess losses offset up to $3,000 of ordinary income each year ($1,500 if married filing separately).⁴ Because conversion income is ordinary income, that $3,000 flows straight against it, and unused losses carry forward into later conversion years.

If your itemized deductions clear the standard deduction, the excess reduces the taxable base for the conversion.⁵ Charitable giving is the most flexible lever. Bunching several years of donations into the conversion year, or funding a donor-advised fund with appreciated stock (deductible at fair market value, capped at 30% of AGI for appreciated assets), can create a sizeable offset. Note that starting in 2026, new rules reduce the tax benefit of charitable deductions for certain high-income filers and impose a small AGI floor before contributions become deductible. Medical expenses only help above 7.5% of AGI, and the conversion itself raises AGI and therefore the floor. The state and local tax deduction is capped at $10,000 for most filers.

Use a Reverse Rollover to Isolate After-Tax Basis

If your Traditional IRA holds a mix of pre-tax dollars and non-deductible (after-tax) contributions, you cannot simply convert the after-tax portion and call it tax-free. The pro-rata rule treats every converted dollar as a proportional slice of the total balance across all your Traditional, SEP, and SIMPLE IRAs, measured on December 31 of the conversion year.⁶ With $90,000 pre-tax and $10,000 after-tax across your IRAs, 90% of anything you convert is taxable, no matter which account you pull from.

A reverse rollover works around this. Move the pre-tax portion out of your IRA and into an employer plan (a 401(k), 403(b), or solo 401(k)) before year-end. Employer plan balances do not count in the IRA pro-rata calculation.⁷ What remains in the Traditional IRA is essentially just your after-tax basis, which can then be converted to a Roth with little or no tax. The employer plan has to accept incoming rollovers, so confirm with the plan administrator first. Self-employed people can create a solo 401(k) for this purpose if the plan document permits IRA rollovers in.

Pay the Tax from Outside the IRA

When you request the conversion, your custodian may offer to withhold federal tax from the amount being moved. Say no if you can. Every dollar withheld is a dollar that never reaches the Roth and never grows tax-free again. Convert $100,000, withhold 22%, and only $78,000 lands in the Roth.

Under age 59½, it gets worse. The withheld amount is treated as a distribution from the Traditional IRA, and the portion not rolled into the Roth is hit with the 10% early withdrawal penalty on top of income tax.⁸ Pay the bill from a taxable account, or cover it by raising wage withholding or making an estimated tax payment.

Watch Medicare IRMAA

If you are on Medicare or within a few years of it, a conversion can quietly raise your premiums. The Income-Related Monthly Adjustment Amount looks at your modified adjusted gross income from two years earlier. A conversion in 2026 affects your 2028 Part B and Part D premiums.

The 2026 Part B IRMAA surcharges are:⁹

Single MAGI up to $109,000 (joint up to $218,000): no surcharge
$109,001–$137,000 (joint $218,001–$274,000): $81.20 per month
$137,001–$171,000 (joint $274,001–$342,000): $202.90 per month
$171,001–$205,000 (joint $342,001–$410,000): $324.60 per month
$205,001–$499,999 (joint $410,001–$749,999): $446.30 per month
$500,000 or more (joint $750,000 or more): $487.00 per month

The same thresholds apply to Part D surcharges. At the top tier, a married couple could pay an extra $11,688 per person per year in surcharges alone, enough to swallow much of a single-year conversion’s benefit. Size each conversion to stop below the next IRMAA threshold, or finish converting before age 63 so the two-year lookback falls before Medicare enrollment at 65.

Consider State Income Tax and Residency

Most states treat conversion income as ordinary income, and rates run from zero to over 13% depending on where you live. If you are planning a move to a lower-tax or no-tax state, converting after you establish residency can save meaningful money. The state that taxes the conversion is the one where you are a resident on December 31 of the conversion year, so a move and a conversion in the same year need careful sequencing.

Pay the Tax on Time

A conversion done mid-year or late in the year can leave you short on tax payments and trigger an underpayment penalty. You avoid the penalty if you owe less than $1,000 after withholding and credits, or if your total payments during the year hit at least 90% of your current-year tax or 100% of your prior-year tax (whichever is smaller).¹⁰ If you are still working, raising W-2 withholding late in the year is the cleanest fix, because withholding is treated as paid evenly across the year regardless of when it actually came out. If you are retired or self-employed, make a quarterly estimated payment.

One Boundary: The Conversion Five-Year Rule

Paying tax on a conversion is not the whole story if you are under 59½. Each conversion starts its own five-year clock running from January 1 of the conversion year, and pulling the converted principal out before that clock finishes triggers the 10% early distribution penalty on the taxable portion.¹ A 2026 conversion clears the clock on January 1, 2031. Once you reach 59½, this particular clock stops mattering.⁸ Plan to leave converted funds alone for at least five years or until 59½, whichever comes later.

1
Office of the Law Revision Counsel. 26 U.S. Code 408A – Roth IRAs
2
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
3
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
4
Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses
5
Internal Revenue Service. Tax Basics – Understanding the Difference Between Standard and Itemized Deductions
6
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
7
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
8
Internal Revenue Service. Topic No. 557, Additional Tax on Early Distributions From Traditional and Roth IRAs
9
Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles
10
Internal Revenue Service. Topic No. 306, Penalty for Underpayment of Estimated Tax