Converting a traditional IRA to a Roth IRA means paying ordinary income tax on the transferred balance now in exchange for tax-free growth, tax-free qualified withdrawals, no required minimum distributions during your lifetime, and a tax-free inheritance for most heirs. The reason to convert an IRA to a Roth comes down to a bet you can actually calculate: your tax rate today against your likely rate later, with enough time in between for tax-free compounding to widen the gap. When your current bracket is lower than the one you expect in retirement and you can pay the tax from outside the IRA, the math tends to favor conversion. When it isn’t, it doesn’t.
How the Conversion Tax Works
Money moved from a traditional IRA (or a 401(k) rolled into one) to a Roth IRA counts as ordinary income for the year of the conversion. Your custodian issues a Form 1099-R, and you report the conversion on Form 8606 with the taxable portion flowing to your Form 1040.1Internal Revenue Service. Instructions for Form 8606 (2025) Because the original contributions and earnings were tax-deferred, the full value of a pre-tax conversion is added to your adjusted gross income.
Where the tax dollars come from matters almost as much as the decision to convert. Paying the bill from a checking or brokerage account, rather than withholding it from the IRA distribution, keeps the entire converted balance compounding inside the Roth. Withhold from the IRA and that money never reaches the Roth, so it stops growing tax-free. If you’re under 59½, the withheld portion can also be treated as an early distribution and hit with a 10% penalty.
Conversions are also one-way. Since 2018, the recharacterization option that once let you undo a conversion by the following October has been gone. Once you convert, the tax bill is yours.
Tax-Free Growth Is the Engine
Every dollar of interest, dividends, and appreciation inside a Roth grows without future tax liability, and qualified withdrawals come out entirely tax-free.2Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs That is the core reason to convert.
Take a $100,000 conversion that grows to $400,000 over twenty years. Inside a Roth, the $300,000 of growth is yours free and clear. Inside a traditional IRA, the full $400,000 is taxed as ordinary income on withdrawal. At a 22% rate, that’s roughly $88,000 of federal tax on the traditional account versus zero on the Roth. The longer the runway, the wider the gap, which is why conversions tend to reward people with at least a decade before they need the money.
There is a subtler benefit too. A traditional IRA balance carries an invisible liability: the future tax you’ll owe when you withdraw. A Roth balance doesn’t. The number on the statement is the number you actually have.
No Required Minimum Distributions
Traditional IRAs force withdrawals starting at age 73, rising to 75 for anyone born in 1960 or later, and each mandatory dollar comes out as ordinary income. Roth IRAs have no required minimum distributions during the original owner’s lifetime.3Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
The practical value is control. You decide when to draw, how much, and in what tax year. That flexibility has ripple effects on Medicare premiums, Social Security taxation, and overall bracket management. Someone with a large traditional IRA can easily see forced distributions push annual income into the 32% bracket or higher, regardless of what they actually spend. Converting some or all of that balance before RMDs begin removes the mandatory income and keeps the retirement tax picture flexible.
A Better Inheritance for Heirs
Under the SECURE Act’s 10-year rule, most non-spouse beneficiaries must empty an inherited IRA within a decade of the owner’s death.4Internal Revenue Service. Retirement Topics – Beneficiary For a traditional IRA, every withdrawn dollar during that decade is taxed as ordinary income to the heir, often during their peak earning years. That can consume 25% to 35% of the inheritance in federal tax alone.
An inherited Roth is still subject to the 10-year liquidation requirement, but the withdrawals are tax-free as long as the original owner’s account had been open at least five years.4Internal Revenue Service. Retirement Topics – Beneficiary A $500,000 Roth left to a child delivers roughly $500,000 of spending power. The same balance in a traditional IRA might deliver $325,000 to $375,000 after tax. Converting is essentially prepaying the tax at your rate instead of theirs.
Surviving spouses fare best. A spouse can roll an inherited Roth into their own account and keep it growing tax-free with no distribution mandate for the rest of their life.4Internal Revenue Service. Retirement Topics – Beneficiary
Timing Conversions in Low-Income Years
The single biggest lever you control is which tax year you convert in. A year when your income temporarily drops lets you fill the lower brackets with converted dollars and pay a fraction of what you would owe during full-employment years.
Common windows include the gap between retiring and starting Social Security, a sabbatical or career change, a year with heavy business deductions, or the year after a layoff. For 2026, a married couple filing jointly stays in the 12% bracket on taxable income up to $100,800, and the 22% bracket extends to $211,400. Single filers stay in the 12% bracket up to $50,400.5Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
The math is not complicated. Take the top of the bracket you’re willing to fill, subtract your other taxable income for the year after the standard deduction ($32,200 joint or $16,100 single in 2026), and the remainder is what you can convert at that rate.5Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill A married couple with $40,000 of other taxable income could convert roughly $60,800 and stay entirely within the 12% bracket, paying about $7,300 of federal tax. That same $60,800 withdrawn from a traditional IRA at a 24% rate in retirement would cost $14,592.
Watch Medicare Premiums and Social Security
A conversion inflates your adjusted gross income for the year, and that spike can quietly raise costs in two places.
Medicare IRMAA Surcharges
Medicare Part B and Part D premiums add an income-related monthly adjustment amount for higher earners, based on modified AGI from two years earlier. A large conversion in 2026 can raise premiums in 2028. For 2026, a single filer above $109,000 pays an extra $81.20 per month for Part B, with steeper tiers above that. Joint filers hit the first surcharge above $218,000. At the top tier, a single filer at $500,000 or more pays an extra $487 per month for Part B and $91 for Part D, close to $7,000 a year in surcharges.6Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles Once the money is in the Roth, later withdrawals don’t count toward MAGI, so the surcharge hit is temporary while the benefit is permanent.
Social Security Taxation
If you’re already collecting Social Security, conversion income can also raise the share of your benefits that gets taxed. The IRS uses “combined income,” meaning AGI plus tax-exempt interest plus half your Social Security benefits. Above $25,000 (single) or $32,000 (joint), up to 50% of benefits become taxable; above $34,000 or $44,000, up to 85%.7Internal Revenue Service. Social Security Income A $50,000 conversion can easily push someone over those thresholds. This is why many people try to finish their conversions before starting Social Security. Roth withdrawals never enter the combined-income calculation.
The Five-Year Rule on Converted Funds
Every conversion starts its own five-year clock. Pull converted principal out before both five years have passed and you’ve reached 59½, and the originally taxable portion gets hit with a 10% early distribution penalty.2Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs The clock starts on January 1 of the conversion year, so a December 2026 conversion is treated as if it began January 1, 2026.
Once you’re past 59½, the early-withdrawal penalty no longer applies regardless of the five-year clock. There is a separate five-year rule for earnings: withdrawals of earnings aren’t tax-free until the account has existed for five taxable years and you meet a qualifying condition (turning 59½, disability, or a first-time home purchase up to $10,000).8Office of the Law Revision Counsel. 26 U.S. Code 408A – Roth IRAs If you already have a Roth that’s been open five years, a new conversion doesn’t restart the earnings clock.
The Pro-Rata Rule for Mixed IRAs
If you’ve made both deductible and nondeductible contributions to traditional IRAs over the years, you can’t convert only the after-tax portion. The IRS treats all your traditional IRA balances (including SEP and SIMPLE IRAs) as one pool for figuring the taxable share of any conversion.9Internal Revenue Service. Rollovers of After-Tax Contributions in Retirement Plans
Divide total nondeductible contributions across all your traditional IRAs by the total balance, and that percentage of each conversion is tax-free. The rest is taxable. With $200,000 in traditional IRAs and $20,000 of it from nondeductible contributions, only 10% of any conversion escapes tax. Convert $50,000 and $45,000 is taxable income.
This is the trap that snags the “backdoor Roth” strategy. It works cleanly only when you have no other pre-tax IRA money. One common workaround is rolling pre-tax IRA funds into a current employer’s 401(k) that accepts rollovers, which removes those balances from the pro-rata math. The IRS uses your IRA balances as of December 31 of the conversion year, so you have until year-end to finish the rollover.
When Converting Doesn’t Make Sense
Conversion is not automatically a good move. A few situations flip the math against you:
- You expect a lower bracket in retirement. If you’re in the 32% or 35% bracket now and plan to live on Social Security plus modest withdrawals, paying today’s rate to avoid a lower rate later is a losing trade.
- You can’t pay the tax from outside funds. Withholding tax from the IRA shrinks the converted balance, and under 59½ it can trigger the 10% penalty on the withheld amount.
- You’ll need the money within a few years. The five-year rule can impose a penalty on early withdrawals of converted amounts, and short horizons don’t give tax-free growth time to overcome the upfront cost.
- A single large conversion spikes you into IRMAA territory or pushes 85% of your Social Security into taxation. Spreading conversions across multiple years often nets more than one big one.
- You’re charitably inclined and over 70½. Qualified charitable distributions let you send up to $105,000 a year from a traditional IRA directly to charity without reporting it as income. Roth IRAs don’t qualify. Converting the balance away removes that tool.
The principle underneath all of this stays the same. A conversion pays off when your rate today is lower than the rate you’d pay on future withdrawals, and you have enough time for tax-free growth to widen the gap. When those two conditions hold, converting is one of the few tax moves where the benefit is both large and durable. When they don’t, leaving the money where it is, or converting in smaller annual slices, is the better call.