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 09, 2026

A Roth conversion is moving money from a pre-tax retirement account into a Roth IRA and paying taxes now so qualified withdrawals may not be taxed later.

Picture this: you are 35, your old 401(k) from a past job is still sitting there, and you keep hearing about Roth IRAs. A conversion may sound like a hack, but it is really a tax trade-off with rules attached. For a broader view, 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 certain 401(k) plans into a Roth IRA. The key point is tax timing. Pre-tax money usually becomes taxable in the year you convert it. In return, the converted money can sit in a Roth IRA, where qualified withdrawals may avoid future income tax.

Think of it like moving money from the “tax me later” bucket to the “tax me now” bucket. You are not adding a new annual contribution. You are changing the tax treatment of money already in a retirement account.

That difference matters. A Roth IRA contribution is limited by income and annual IRS contribution limits. A Roth conversion has no income cap, though tax rules still apply. If you want the side-by-side basics, see Roth IRA vs Traditional IRA.

How a Roth conversion works

A Roth conversion usually happens when money moves directly from a pre-tax retirement account to a Roth IRA. Your financial institution reports the transaction for tax purposes. The IRS explains in Publication 590-A that taxable converted amounts are generally included in gross income for the year of the conversion, unless part of the money was already taxed.

Here is a concrete example. Say you have $30,000 in a Traditional IRA from an old workplace rollover. You decide to convert $10,000 this year. If the full $10,000 was pre-tax money and you are in the 22% federal tax bracket, the federal income tax could be about $2,200, before any state taxes or other tax effects.

That does not mean the conversion costs exactly $2,200 for every person. Your total income, deductions, state tax rules, and credits can change the real number. A large conversion could also push some of your income into a higher bracket.

Some people convert a smaller amount each year instead of converting a large balance all at once. Others may look at years when income is lower, like a career break or the first year of retirement. This is general guidance; what is right for you depends on your specific situation.

Why a Roth conversion matters

A Roth conversion matters because it can change when you pay income tax on retirement money. If you expect your tax rate to be higher later, paying some tax now may be worth studying. If your tax rate is high today, a conversion may feel less attractive. The math depends on your income, age, cash flow, and time horizon.

For everyday investors, the biggest issue is not finding a perfect answer. It is avoiding a surprise tax bill. If you convert $20,000 in December and do not set aside money for taxes, April can get uncomfortable fast.

Roth IRAs also have rules that make timing important. Converted amounts have a 5-year aging rule for penalty purposes. This is separate from the 5-year rule that applies to Roth IRA earnings. If you need a refresher before touching the money, read What Is a Roth IRA?.

There is also a planning angle for people who earn too much to contribute directly to a Roth IRA. Some use a backdoor Roth IRA strategy, which includes a conversion step. That topic has extra tax wrinkles, especially if you already have pre-tax IRA money. Learn more in The Stash Way: Invest Regularly.

Stash is a regulated investment adviser — not a bank. We focus on guidance, not pushing specific securities. If you are searching for this, you are already doing the right work: learning the rules before moving money.

Common misconceptions about Roth conversions

Roth conversions are often described too casually online. That can make them sound like a quick tax win. In real life, a conversion is a planning move, not a shortcut. It can be useful in some cases, but it can also create taxes, paperwork, and timing issues you need to understand first.

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

Myth: Roth conversions are always better because future withdrawals may not be taxed. Correction: if your tax rate is much higher now than later, paying tax today may not be the better trade-off.

Myth: You need to convert your whole account. Correction: partial conversions are allowed, and many people look at smaller conversions to manage taxes.

One more thing: a conversion is not a market-timing tool. The goal is tax planning, not guessing where investments go next. Investing involves risk, and market values can rise or fall after a conversion.

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, or state taxes. Those details can matter as much as the account rules. Plans starting at $3 a month can give you financial guidance built into your phone, but tax choices still need careful review.

• This article and image were created with the assistance of artificial intelligence and reviewed by Stash before publication.

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

• Stash offers subscription plans starting at $3 per month. Other fees may apply; see the fee schedule for details.

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

Bottom line

A Roth conversion is a tax-timing decision. It can make sense to study when you want future Roth IRA flexibility, but it may also create a tax bill today. Before converting, think through the amount, tax year, 5-year rules, and how the move fits your broader retirement plan.