Roth Conversion Explained: Taxes, Rules, and Timing

By Ed Robinson, Co-Founder & Co-CEO, Stash · FINRA Series 7 & 63 · Graduate Diploma in Financial Planning · Last updated June 10, 2026

A Roth conversion moves money from a pre-tax retirement account into a Roth IRA. You usually pay income tax in the year you convert. In exchange, qualified Roth IRA withdrawals later may not be subject to federal income tax.

That trade-off can be powerful. It can also be expensive if you rush it.

A conversion is not a loophole, a hot tip, or a way around taxes. It is a tax-timing decision. You are choosing whether to pay some tax now so the money may get Roth treatment later. For the broader Roth IRA basics, start with our Complete guide to Roth IRAs.

What a Roth conversion is

A Roth conversion lets you move retirement money from a Traditional IRA, SEP IRA, SIMPLE IRA, or eligible workplace retirement plan into a Roth IRA.

The key idea is simple:

• Traditional retirement money is often pre-tax. You may have gotten a deduction when the money went in, or the money may have come from pre-tax payroll contributions.

• Roth IRA money is after-tax. Qualified withdrawals may not be taxed later.

So a conversion moves money from the “tax me later” bucket to the “tax me now” bucket.

A Roth conversion is different from a Roth IRA contribution. A contribution adds new money to an IRA and is subject to annual IRS contribution limits and income phaseouts. A conversion moves money that is already in a retirement account. In 2026, Roth conversions still have no IRS income limit and no annual conversion dollar limit, but taxable conversions can raise your income for the year.

That last part matters. “No conversion limit” does not mean “no tax bill.”

For a side-by-side look at account types, see What Is a Roth IRA?.

How a Roth conversion works

Most Roth conversions happen in one of three ways:

1. Direct conversion: Money moves from a Traditional, SEP, or SIMPLE IRA directly into a Roth IRA at the same firm.

2. Trustee-to-trustee transfer: Money moves from one financial institution to another.

3. Eligible rollover conversion: Money from a workplace plan, such as an old 401(k), rolls into a Roth IRA if the plan allows it.

Your financial institution reports the transaction for tax purposes, usually on Form 1099-R. You may also need IRS Form 8606 if you converted money from an IRA, especially if you have any after-tax IRA basis.

A plain-English example

Say you have $30,000 in a Traditional IRA from an old 401(k) rollover. All of it is pre-tax. You convert $10,000 to a Roth IRA in 2026.

If you are in the 22% federal tax bracket, the federal income tax on that conversion could be about $2,200, before state taxes and other effects.

But your real tax cost could be higher or lower because a conversion adds to your taxable income. It can affect:

• Your federal tax bracket

• State income taxes

• Tax credits and deductions

• Medicare premiums if you are enrolled in Medicare

• Taxation of Social Security benefits

• Eligibility for some income-based benefits or subsidies

A Roth conversion is reported for the calendar year it happens. Unlike IRA contributions, you cannot do a “prior-year” Roth conversion by the tax filing deadline. If you want a conversion to count for 2026, it generally has to be completed by December 31, 2026.

Roth conversion taxes: what actually gets taxed

The taxable amount depends on what kind of money you convert.

If you convert pre-tax money, it is usually included in your gross income for the year. If you convert after-tax money, that portion may not be taxed again, but the recordkeeping has to be clean.

Here is where many investors get tripped up: the IRS does not let you cherry-pick only the after-tax dollars inside your Traditional IRA.

The pro-rata rule, explained

The pro-rata rule says the IRS looks at all your Traditional IRAs, SEP IRAs, and SIMPLE IRAs together when figuring out how much of a conversion is taxable.

Example:

• You have $90,000 of pre-tax IRA money.

• You also have $10,000 of after-tax IRA money.

• Total IRA balance: $100,000.

• You convert $10,000 to a Roth IRA.

You might hope the conversion uses only the $10,000 after-tax portion. The IRS generally does not see it that way. In this example, 90% of your IRA money is pre-tax, so about 90% of the conversion, or $9,000, would be taxable.

This is one reason backdoor Roth IRA strategies can get complicated for people who already have pre-tax IRA balances. Learn more in What is a backdoor Roth IRA?.

Roth conversion rules to know in 2026

A Roth conversion is not hard to define, but the rules around it matter.

1. There is no income limit for conversions

High earners may be phased out of direct Roth IRA contributions, but they are not blocked from Roth conversions solely because of income. That is why conversions are often part of backdoor Roth IRA discussions.

2. There is no annual conversion cap

You can convert a partial amount or a full account balance. The IRS does not set a maximum conversion amount. Your tax bill is the practical limit for many people.

3. Conversions are usually taxable

If the money has not been taxed before, a conversion usually makes it taxable now.

4. Roth conversions cannot be undone

Before 2018, some people could recharacterize, or reverse, a Roth conversion. Current law does not allow that. Once you convert, you generally have to live with the tax result.

5. Each conversion has its own 5-year clock

Roth conversions have a 5-year rule for avoiding the 10% early withdrawal penalty on converted amounts if you are under age 59½. Each conversion gets its own 5-year period.

This is separate from the 5-year rule that applies to Roth IRA earnings. If you plan to withdraw Roth money, read The Stash Way: Invest Regularly before you touch it.

6. Required minimum distributions cannot be converted

If you are old enough to take required minimum distributions, or RMDs, you generally have to take the RMD first. The RMD itself cannot be converted to a Roth IRA.

Under current law, RMDs generally begin at age 73 for people born from 1951 through 1959 and age 75 for people born in 1960 or later.

7. SIMPLE IRAs have a 2-year rule

If you have a SIMPLE IRA, special timing rules may apply during the first two years of participation. Moving money too early can create extra tax penalties, so check the start date before converting.

When a Roth conversion may be worth considering

A Roth conversion may be worth studying when your tax rate today is lower than you expect later, or when Roth flexibility matters to your long-term plan.

Common situations include:

• A lower-income year: A job change, sabbatical, business loss, or early retirement year may put you in a lower tax bracket.

• Years before RMDs begin: Some retirees look at conversions after they stop working but before RMDs start.

• A long time horizon: More years in a Roth IRA may give investments more time to compound under Roth tax rules.

• Estate planning goals: Roth IRAs do not have lifetime RMDs for the original owner, though inherited Roth IRAs have their own rules.

• Tax diversification: Having both pre-tax and Roth accounts may give you more flexibility in retirement.

None of this means you should convert automatically. The financial industry loves to make complex moves sound obvious. They are not. Good planning beats hype.

At Stash, our bias is toward long-term investing, diversification, consistency, and guidance people can actually use. A Roth conversion can fit that approach, but only when the tax math supports it.

When a Roth conversion may not make sense

A conversion may be less appealing if it creates a tax bill you cannot comfortably cover, pushes you into a much higher tax bracket, or affects other parts of your financial life.

Be careful if:

• You would need to use retirement money to pay the tax.

• The conversion would push you into a higher bracket than expected.

• You rely on income-based credits, subsidies, or benefits.

• You are close to Medicare and the conversion could raise future premiums.

• You may need the converted money within five years and are under 59½.

• You expect your retirement tax rate to be lower than your current rate.

Paying the tax from outside the retirement account is often cleaner than withholding taxes from the conversion itself. If taxes are withheld from IRA money and you are under 59½, the withheld portion may be treated as a distribution and could face a 10% penalty.

Partial Roth conversions: why smaller can be smarter

You do not have to convert an entire account.

Many people consider partial conversions because they want more control over the tax impact. Instead of converting $100,000 in one year, someone might convert $15,000 or $20,000 per year over several years, depending on their bracket and cash flow.

Think of it like filling a bucket. If your current tax bracket has room before the next bracket starts, a partial conversion may “fill” part of that bracket without spilling as much income into the next one. That does not make it automatically right, but it shows why timing and sizing matter.

This is where a tax professional can be worth it. A good estimate should include your wages, deductions, investment income, state taxes, credits, and any other income that lands on your return.

Common misconceptions about Roth conversions

Roth conversions are often explained too casually online. Here is what to watch for.

Myth: A Roth conversion is the same as a Roth IRA contribution.
A contribution adds new money. A conversion moves existing retirement money and may create taxable income.

Myth: Roth conversions are always better.
Not always. If your tax rate is much higher now than it will be later, paying tax today may be the wrong trade-off.

Myth: You have to convert your whole account.
You can do a partial conversion.

Myth: A backdoor Roth IRA avoids all taxes.
Not necessarily. The pro-rata rule can make part, or most, of the conversion taxable if you have pre-tax IRA money.

Myth: A conversion is a market-timing move.
It is a tax-planning move. Market values can rise or fall after a conversion. Investing involves risk, including loss of principal.

Roth conversion checklist

Before converting, slow down and answer these questions:

• What account are you converting from?

• How much of the balance is pre-tax?

• Do you have after-tax IRA basis?

• Will the pro-rata rule apply?

• What tax bracket are you in now?

• Could the conversion affect credits, Medicare premiums, or state taxes?

• Do you have cash outside the retirement account to cover the tax?

• Are you under 59½?

• When will each 5-year conversion clock start?

• Does the conversion fit your broader retirement plan?

If you cannot answer these yet, that is not failure. That is the point of planning. Money decisions should not require you to decode the tax code by yourself. Stash exists because guidance should be available to everyday investors, right from your phone.

Bottom line

A Roth conversion is a tax-timing decision. It can give you future Roth IRA flexibility, but it can also create a tax bill today.

The smart move is not to chase a trend. It is to understand the rules, estimate the tax cost, and decide whether the conversion fits your long-term plan. Invest for the long term, diversify, invest consistently, and get help when the decision has tax consequences.

Important disclosures

This article is for education and general guidance, not personalized recommendations. Stash does not provide tax advice. A tax professional can help you estimate the cost of a conversion based on your full income picture. Investment advisory services are offered by Stash Investments LLC, an SEC-registered investment adviser.

A Roth conversion may affect your tax bracket, eligibility for credits, Medicare premiums, state taxes, or other parts of your tax return. Those details can matter as much as the account rules.

• Investing involves risk, including the possible loss of principal. Past performance is not a guarantee of future results.

• Stash does not provide tax or legal guidance. Consult a qualified tax or legal professional about your circumstances.

• This material is for informational and educational purposes only and does not constitute investment, legal, accounting, or tax advice. The information reflects market conditions as of publication and may change without notice. Stash makes no guarantees regarding accuracy or future performance. Investing involves risk, including possible loss of principal. Examples are for illustrative purposes only and not recommendations to buy or sell any security or strategy. Past performance does not guarantee future results. For full disclosures, visit www.stash.com/disclosures.