Roth Conversion

A Roth conversion is the process of moving money from a traditional IRA or other pre-tax retirement account into a Roth IRA. When you make this move, the amount converted is added to your taxable income for that year. In exchange, the money grows tax-free inside the Roth IRA, and qualified withdrawals in retirement are not taxed.

The core idea behind a Roth conversion is paying taxes now to avoid paying them later. This can work in your favor if you expect to be in a higher tax bracket in retirement than you are today. Many people consider conversions during years when their income is lower than usual, such as after a job change, early retirement, or a year with large deductions.

There is no annual limit on how much you can convert. However, the converted amount is treated as ordinary income, which means a large conversion could push you into a higher tax bracket, trigger Medicare surcharges, or affect other income-based thresholds. Planning the size of each conversion carefully is important.

A practical example helps illustrate this. Suppose you have $50,000 in a traditional IRA and convert it to a Roth IRA in 2026. That $50,000 is added to your gross income for the year. If your federal tax rate is 22%, you would owe approximately $11,000 in federal taxes on the conversion. After that, the money grows tax-free and qualified withdrawals in retirement are not taxed at all.

Key facts to know about Roth conversions in 2026:

• There is no income limit to perform a Roth conversion, even if your income is too high to contribute directly to a Roth IRA.
• Converted funds must stay in the Roth IRA for at least five years to qualify for tax-free withdrawal of earnings.
• You cannot undo or reverse a Roth conversion once it is completed. This rule has applied since 2018.
• Conversions from employer plans like a 401(k) are also possible, often called an in-plan Roth conversion or a rollover to a Roth IRA.

RetireGrader is not a financial advisor or fiduciary. Speaking with a qualified tax professional before completing a Roth conversion is a practical step worth considering.