How to Convert a Rollover IRA to a Roth IRA: Steps, Taxes, and Pitfalls

To convert a rollover IRA to a Roth IRA, you move some or all of the balance from the traditional-side account into a Roth account at the same or a different custodian, then pay ordinary income tax on the pre-tax portion for the year of the transfer. There’s no income limit and no cap on how much you can convert. The mechanics are quick. The tax planning is where the work is.

Pick a Transfer Method

You have three ways to get the money from one account to the other, and the right one usually comes down to where the two accounts live.

Same-Trustee Transfer

If both accounts sit at the same brokerage or custodian, this is the simplest option. You request the conversion through your dashboard or by phone, and the money moves internally. The firm reports the conversion to the IRS as a distribution from the traditional account and a contribution to the Roth, but no check is cut and no deadline is running.¹

Trustee-to-Trustee Transfer

When the rollover IRA is at one firm and the Roth is at another, you ask for a direct transfer between custodians. The sending firm wires or mails funds straight to the receiving firm. You’ll provide the receiving institution’s name, the Roth account number, and any routing details the sender asks for. The money never touches you, which keeps things clean.

Indirect Rollover

Here the custodian sends you a check. You then have exactly 60 days from the date you receive it to deposit the full amount into a Roth IRA. Miss that window and the IRS treats the whole amount as a taxable distribution rather than a conversion, plus a possible 10% penalty if you’re under 59½. The one-per-year limit on IRA-to-IRA rollovers does not apply to Roth conversions, but the 60-day rule alone makes this the riskiest method.²

What the Conversion Will Cost You in Tax

The converted amount gets added to your ordinary income for the year. Federal law requires that any amount that would have been taxable if withdrawn normally is included in gross income when you convert it into a Roth.³ If your rollover IRA holds only pre-tax money, the full balance you move counts as income.

That added income can push you into a higher federal bracket. Someone earning $90,000 who converts $50,000 lands at $140,000 of taxable income before deductions, which for 2026 pulls part of the converted amount out of the 22% bracket and into the 24% bracket.⁴ Converting a large balance all at once often means paying a rate you’d never otherwise hit. Spreading the conversion across several tax years keeps more of the money in lower brackets.

Most states treat a Roth conversion as ordinary income the same way, adding another layer of up to roughly 13% depending on where you live. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming levy no individual income tax at all. Some states with an income tax offer partial exclusions for retirement income, but whether those apply to conversions varies. Check before you file.

The Pro-Rata Rule

If you’ve ever made nondeductible (after-tax) contributions to any traditional IRA, you can’t cherry-pick those dollars for the conversion. The IRS treats every traditional, rollover, and SEP IRA you own as one combined pool when calculating the taxable share.⁵ Divide your total after-tax basis across all traditional IRAs by the combined balance of those IRAs on December 31 of the conversion year. That percentage is the tax-free share of anything you convert. So if you have $10,000 in after-tax basis and $90,000 in pre-tax funds, only 10% of each converted dollar escapes tax. On a $50,000 conversion, $45,000 is taxable and $5,000 is not.

One workaround: if your current employer’s 401(k) accepts incoming rollovers, you can roll the pre-tax IRA money into the 401(k) first. That leaves only the after-tax basis in the traditional IRA, and the pro-rata math tilts your way.

How to Actually Pay the Tax

When you initiate the conversion, the custodian asks whether you want federal income tax withheld from the distribution. The default withholding rate is 10%, but you can pick a different percentage or opt out. Opting out and paying the tax from other funds is almost always the better move. Every dollar withheld is a dollar that doesn’t reach the Roth to grow tax-free.

A sizable conversion can also trigger an underpayment penalty. The IRS expects you to pay at least the lesser of 90% of your current year’s tax or 100% of last year’s, and that second figure rises to 110% if your prior-year adjusted gross income was over $150,000.⁶ Making a quarterly estimated payment in the quarter you convert is the cleanest way to stay ahead of it.

Steps to Complete the Conversion

Open a Roth IRA at the firm where you want the converted funds to land, if you don’t already have one. The Roth can be at the same firm as the rollover IRA or somewhere else.
Request the conversion through the custodian’s website, by phone, or with a conversion form. Specify whether you want a full or partial conversion, and set your tax withholding (ideally zero).
Provide transfer details if the Roth is at a different institution: receiving firm’s name, Roth account number, and any routing information the sender asks for.
Wait for processing. Most institutions finish the transfer in three to ten business days. Watch the rollover IRA balance drop and confirm the funds appear in the Roth.
Reinvest the funds. Converted money usually arrives as cash unless you arrange an in-kind transfer. Allocate it once it lands.

Some custodians charge a small transfer or account-closure fee, though many of the largest brokerages have dropped these. Where fees remain, expect roughly $25 to $75.

You don’t have to sell your holdings before converting. The IRS allows in-kind conversions, so stocks, bonds, and mutual fund shares can move directly into the Roth. The taxable amount is the fair market value on the transfer date. One catch: if property comes out to you in an indirect rollover, you must deposit the same property into the Roth. You can’t keep the shares and put in cash of equal value. You can, however, sell the property and roll the cash proceeds within 60 days.⁷

Reporting the Conversion Next Filing Season

The custodian that held the rollover IRA issues Form 1099-R by January 31 of the year after the conversion. It reports the gross distribution and taxable amount. The Box 7 distribution code is 2 if you were under 59½ at the time, or 7 if you were 59½ or older.¹

You report the conversion on IRS Form 8606, Part II. That’s where the pro-rata calculation lives if you have any after-tax basis in your traditional IRAs. Filing Form 8606 is required for any year you convert, and failing to file it when you’ve made nondeductible contributions carries a $50 penalty.⁸ Both forms go in with your Form 1040 by the April 15 deadline.⁹ An extension buys you until October 15 to file, but tax owed on the conversion is still due April 15. Make sure the amounts on the 1099-R and Form 8606 line up; a mismatch is one of the fastest ways to draw an IRS notice.

Things People Miss

You Can’t Undo a Conversion

p>Before 2018, you could recharacterize a Roth conversion and effectively reverse it. The Tax Cuts and Jobs Act of 2017 eliminated that option for conversions in tax years beginning after December 31, 2017.³ Once you convert, the tax bill is locked in at that day’s value. If the market drops the next week, you still owe tax on what you moved. That permanence is one more reason to think about timing and to consider converting in pieces.

Two Separate Five-Year Clocks

Roth IRAs run two five-year clocks, and confusing them is one of the most common post-conversion mistakes.

The first is for earnings. For a withdrawal of earnings to be fully tax-free (a “qualified distribution”), the account must have been open at least five tax years and you must be 59½ or older, disabled, or taking distributions after death. The clock starts January 1 of the year you first funded any Roth IRA, whether by contribution or conversion.³ A new conversion doesn’t reset a clock that already started years ago.

The second is for each conversion individually. Every conversion carries its own five-year holding period beginning January 1 of the year you convert. If you pull converted funds out before both five years have passed and you’re 59½, you’ll owe a 10% early-distribution penalty on the taxable portion of that conversion, even though you already paid income tax on it.¹⁰ Once you’re 59½, the conversion clock stops mattering for penalty purposes. Exceptions exist for disability, death, and certain other qualifying events.¹¹

Medicare Premiums Two Years Out

If you’re on Medicare or approaching 65, put this on the list. Medicare Part B and Part D premiums are income-based, and the surcharge system (IRMAA) uses your modified adjusted gross income from two years earlier. A conversion in 2026 raises 2026 income, which sets 2028 premiums. For 2026, Part B surcharges begin at $109,000 for single filers and $218,000 for joint filers, and the standard $202.90 monthly premium can climb to $689.90 at the top bracket. Part D has its own IRMAA on top.¹² A Roth conversion is not a qualifying life event for a premium reconsideration, so you can’t appeal the surcharge away.

1
Internal Revenue Service. 2025 Instructions for Forms 1099-R and 5498
2
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
3
Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs
4
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
5
Internal Revenue Service. Rollovers of After-Tax Contributions in Retirement Plans
6
Internal Revenue Service. Estimated Taxes
7
Internal Revenue Service. Publication 590-A (2025), Contributions to Individual Retirement Arrangements (IRAs)
8
Internal Revenue Service. 2025 Instructions for Form 8606 – Nondeductible IRAs
9
Internal Revenue Service. When to File
10
Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs)
11
Internal Revenue Service. Topic No. 557, Additional Tax on Early Distributions from Traditional and Roth IRAs
12
Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles