A Roth conversion after 59½ no longer carries the 10% early withdrawal penalty that applies to younger account holders, so ordinary income tax on the converted amount is the only federal cost of moving money from a traditional IRA or 401(k) into a Roth. That is a meaningful change in the math, but the conversion still lands on your tax return as income for the year, and that spike can quietly raise your Medicare premiums, tax more of your Social Security, and expose investment income to a surtax you weren’t paying before. Sizing and timing the conversion is where the real money is made or lost.
What Actually Changes at 59½
Before 59½, the IRS adds a 10% additional tax to most retirement account distributions, and that surcharge applies to the taxable portion of a Roth conversion because the IRS treats converted money as though it were distributed to you.1Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions Once you cross 59½, that penalty is gone.2Internal Revenue Service. Topic No. 557, Additional Tax on Early Distributions From Traditional and Roth IRAs
What remains is a straightforward question: does it make sense to pay ordinary income tax on that money now in exchange for tax-free growth and withdrawals later? For most people in their 60s and early 70s, the answer turns on their current bracket, their expected future bracket, and how a jump in reported income affects the rest of their tax picture.
Two other things worth knowing up front. Congress removed the income-based restriction on Roth conversions in 2010, so there is no upper limit on how much you can earn and still convert.3Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs And there is no cap on the dollar amount you can convert in a single year, though converting a large sum in one shot is usually the wrong move for reasons that follow.
How the Conversion Is Taxed
Every dollar you convert from a traditional IRA to a Roth IRA counts as ordinary income in the year of the conversion. Federal rates for 2026 run from 10% to 37%, and the converted amount stacks on top of your other income for the year.4Internal Revenue Service. Federal Income Tax Rates and Brackets A $100,000 conversion for someone already earning $90,000 does not get taxed at a single flat rate. The first slice fills whatever room is left in your current bracket, and the rest spills into the higher brackets above it.
A large conversion can push you from the 22% bracket into the 32% or even 35% bracket in a single year. Tax is not withheld automatically unless you ask your custodian to withhold, and even then the default percentage may not cover the full bill. If you don’t make estimated tax payments or adjust your withholding to account for the extra income, you could owe an underpayment penalty when you file. The IRS generally waives that penalty if you’ve paid at least 90% of the current year’s tax or 100% of the prior year’s tax through withholding and estimated payments.5Internal Revenue Service. Topic No. 306, Penalty for Underpayment of Estimated Tax
Most states with an income tax treat the conversion the way the federal government does and add it to state taxable income. A handful of states have no income tax or exempt retirement distributions, so the state cost varies by where you live.
The Pro-Rata Rule for After-Tax Money
If you’ve ever made nondeductible contributions to a traditional IRA, you cannot convert just those after-tax dollars and owe nothing. Under the aggregation rule, the taxable portion of any conversion is based on the ratio of pre-tax money to total money across all of your traditional, SEP, and SIMPLE IRAs combined.6Internal Revenue Service. Instructions for Form 8606 Inherited IRAs sit outside this calculation, and so do employer plans like 401(k)s unless you rolled them into an IRA in the same year.
An example makes it concrete. You have $200,000 total across all your traditional IRAs, and $40,000 of that came from nondeductible contributions. Your after-tax ratio is 20%. If you convert $50,000, only 20% of the conversion ($10,000) is tax-free. The other $40,000 is taxable income. The IRS uses balances as of December 31 of the conversion year, so market moves between the conversion and year-end affect the calculation. You report all of this on Form 8606.
Ripple Effects Beyond the Bracket Tables
The income from a conversion feeds into several other calculations that can cost you money for years afterward. These are the pieces that surprise people, because the tax bracket hit is visible but the downstream effects are not.
Medicare Premium Surcharges
Medicare uses your modified adjusted gross income from two years earlier to decide whether you pay a surcharge on Part B and Part D premiums, known as the Income-Related Monthly Adjustment Amount, or IRMAA. For 2026, the surcharges start when 2024 income exceeds $109,000 for an individual or $218,000 for a married couple filing jointly.7Medicare.gov. Medicare Costs At the top tier, above $500,000 individual or $750,000 joint, the monthly Part B premium reaches $689.90 per person.
Because of the two-year lookback, a large conversion in 2024 hits your Medicare bill in 2026. Someone converting $150,000 who was otherwise below the threshold could pay an extra $100 or more per month in Part B alone, plus a Part D surcharge, for the full calendar year. Planning your conversion amounts around the IRMAA brackets can save real money over a multi-year strategy.
Social Security Benefit Taxation
Up to 85% of your Social Security benefits can become taxable depending on your “combined income,” which is your adjusted gross income plus nontaxable interest plus half your benefits. The thresholds have never been adjusted for inflation: for a single filer, $25,000 triggers taxation on up to 50% of benefits and $34,000 triggers taxation on up to 85%. For married couples filing jointly, the thresholds are $32,000 and $44,000.8Office of the Law Revision Counsel. 26 USC 86 – Social Security and Tier 1 Railroad Retirement Benefits
Most retirees with meaningful income already have 85% of their benefits taxed, so a conversion changes nothing for them on this front. But if you sit near the margin, a conversion can move you from the 50% tier to the 85% tier and effectively raise your marginal rate beyond what the bracket tables suggest. This matters most for people in their early 60s who are already collecting Social Security while still in a relatively low bracket.
Net Investment Income Tax
A separate 3.8% surtax applies to the lesser of your net investment income or the amount by which your modified AGI exceeds $200,000 (single) or $250,000 (joint).9Internal Revenue Service. Net Investment Income Tax The conversion itself isn’t classified as investment income, but it raises your modified AGI. If you have dividends, capital gains, or rental income sitting below the threshold, a large conversion can push your AGI above the line and expose that investment income to the 3.8% surtax for the first time.
The Five-Year Rule When You’re Already Past 59½
The five-year rule catches people over 59½ off guard, mostly because they assume it doesn’t apply to them. It does, but in a narrower way than for younger account holders.
A Roth IRA distribution is “qualified” (entirely tax-free) only if two conditions are met: you’re at least 59½, and at least five tax years have passed since you first contributed to or converted into any Roth IRA.10Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs The five-year clock starts on January 1 of the tax year of your first Roth contribution or conversion, and it does not reset with each new conversion.
If you’ve had any Roth IRA open for five or more tax years and you’re past 59½, every distribution is qualified. Contributions, conversions, earnings, all tax-free. New conversions do not create a separate waiting period. This is the situation most people over 59½ are in, especially if they opened a Roth at any point in the past.
The five-year rule matters only if you’re opening your very first Roth IRA. Someone who converts for the first time at age 62 in 2026 starts the clock on January 1, 2026. Until January 1, 2031, the earnings portion of any withdrawal would be taxable as ordinary income. The converted principal itself can be pulled out anytime without additional tax, since you already paid income tax on it when you converted. And because you’re past 59½, there’s no 10% penalty regardless. The only thing at stake is income tax on the earnings, and only for that initial five-year window.
Conversions and Required Minimum Distributions
Traditional IRAs force required minimum distributions starting at age 73 if you were born between 1951 and 1959, or age 75 if you were born in 1960 or later.11Congressional Research Service. Required Minimum Distribution (RMD) Rules for Original Owners If you’ve reached your RMD age, you must take your full annual distribution before converting any additional money. You cannot convert an RMD into a Roth to escape the tax on it.
The penalty for missing an RMD is a 25% excise tax on the shortfall, reduced to 10% if you correct the mistake inside the correction window.12GovInfo. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans So the annual sequence is straightforward: take the RMD, report it as income, then convert whatever additional amount you choose from the remaining balance.
The long-term payoff is worth pausing on. Once money moves into a Roth IRA, it is no longer subject to required minimum distributions during your lifetime.10Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs Every dollar shifted to a Roth is a dollar the IRS cannot force you to withdraw on their schedule. The money grows tax-free for the rest of your life, and heirs inherit that tax-free status (though they face their own distribution timeline).
Why Spreading the Conversion Across Years Usually Wins
Converting everything in one year is rarely the best move. A single large conversion can vault you into the 35% or 37% bracket and trigger the Medicare and Social Security effects described above. Spreading the conversion over several years lets you fill each year’s lower brackets without spilling into higher ones.
The sweet spot for many retirees is converting enough each year to fill the current bracket, or to stay just below an IRMAA threshold. Someone in the 22% bracket with $40,000 of room before the next bracket starts might convert exactly $40,000 a year for five or six years rather than converting $200,000 at once. Total tax on $200,000 converted in $40,000 chunks at 22% is far less than converting the full amount in a single year where much of it lands in the 32% bracket or higher.
The window between retirement and RMD age is especially valuable because your income may be lower than at any other time in your adult life. No salary, no RMDs yet, possibly reduced Social Security if you’re delaying benefits. That gap is the ideal time to convert at bargain rates. Once RMDs begin, your baseline taxable income rises and leaves less room for conversions at low rates.
Executing the Conversion
The cleanest method is a direct trustee-to-trustee transfer, where your financial institution moves the money from your traditional IRA to your Roth IRA internally or sends it to another custodian.13Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions You never touch the money, nothing is withheld unless you ask for it, and there’s no 60-day deadline. Most custodians handle the whole conversion through an online request or a single phone call.
The alternative is an indirect rollover, where the funds are distributed to you and you deposit them into the Roth yourself within 60 days. Miss that window and the entire amount counts as a taxable distribution that cannot be undone. The trustee-to-trustee route is safer and avoids the risk entirely.
When you initiate the conversion, you’ll be asked about withholding on Form W-4R, which lets you choose how much federal tax to withhold from the distribution.14Internal Revenue Service. About Form W-4R, Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions Any amount withheld reduces the dollars that actually reach the Roth. If you convert $100,000 and withhold 22% for taxes, only $78,000 lands in the account, and the withheld $22,000 loses the chance to grow tax-free. When possible, elect zero withholding on the conversion and pay the tax bill separately.
Your custodian will issue Form 1099-R the following January to report the distribution to the IRS.15Internal Revenue Service. Instructions for Forms 1099-R and 5498 You report the conversion on your federal return using Form 8606, which is also where you calculate the taxable portion if you have after-tax basis in your traditional IRAs.6Internal Revenue Service. Instructions for Form 8606
Paying the Tax Without Shrinking Your Retirement
The point of a conversion is to maximize the pool of money growing tax-free. If you pull funds from the converted amount or another retirement account to cover the tax, you undercut that goal. Paying the income tax from a taxable brokerage account, savings, or other non-retirement funds preserves the full converted balance inside the Roth.
For a large conversion, quarterly estimated tax payments generally beat relying on withholding at the moment of conversion. That keeps you inside the underpayment safe harbors (90% of the current year’s liability or 100% of the prior year’s tax) and avoids a five- or six-figure surprise at filing time.5Internal Revenue Service. Topic No. 306, Penalty for Underpayment of Estimated Tax If the conversion happens late in the year, the annualized installment method may reduce or eliminate an underpayment penalty for earlier quarters when you hadn’t yet realized the extra income.