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You can generally convert amounts from a traditional IRA to a Roth IRA regardless of your adjusted gross income, but a conversion is not automatically tax-free. The portion that would have been taxable as a traditional IRA distribution is generally included in income for the year you convert; documented after-tax basis is not taxed again. Before converting, check whether an RMD applies, calculate the taxable share under IRS rules, and review the tax impact using your full income and account information.
What is a Roth IRA conversion?
A Roth IRA conversion moves all or part of the assets in a traditional IRA into a Roth IRA. The IRS describes conversion eligibility as generally independent of adjusted gross income. This differs from making a regular Roth IRA contribution, which is subject to separate rules.
A conversion is generally taxable to the extent the transferred amount consists of money that would have been taxable if distributed from the traditional IRA. A conversion does not itself establish that converting is beneficial; the tax result depends on your circumstances.
How much of a conversion is taxable?
Amounts that have not previously been taxed are generally included in gross income for the calendar tax year in which the conversion is completed. After-tax basis, such as properly documented nondeductible contributions, is not taxed a second time. There is no universal conversion tax rate or tax bill: the result depends on the amount converted, basis, applicable IRA balances, and other income and filing circumstances.
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One free scan finds every outdated or missing driver and matches the right update for your exact hardware.Free scan · exact hardware matchIf you have after-tax basis, use IRS Form 8606 and the instructions for the tax year at issue to determine the taxable and nontaxable amounts. Gather prior Forms 8606 and account records; the taxpayer remains responsible for accurate reporting even when a custodian provides tax forms.
How the pro-rata calculation works
You generally cannot choose to convert only the after-tax dollars in one traditional IRA while leaving pretax dollars in another applicable IRA untouched. IRS Form 8606 instructions determine the taxable share by considering the applicable traditional, SEP, and SIMPLE IRA amounts together. Follow the instructions for the tax year of the conversion rather than estimating the result from the converted account alone.
For a conversion involving basis, review your full IRA account values and basis records before acting. Missing or incomplete basis records can make reporting difficult and may lead to after-tax amounts being taxed again.
RMDs and conversions
An amount that must be distributed as a required minimum distribution for the year cannot be converted. If you must take an RMD from a traditional IRA, distribute the RMD first; only an eligible remaining amount may be considered for conversion. Traditional IRA owners generally begin RMDs for the year they reach age 73 under current IRS guidance. Check the current rules for the tax year that applies to you.
How to complete and report a conversion
- Check the account and your circumstances. Confirm that the assets are eligible for the transaction and determine whether an RMD must first be distributed.
- Review the potential taxable amount. Identify any documented after-tax basis and use the IRS instructions for Form 8606 to calculate the taxable share.
- Choose a transfer method. A conversion may be completed by a direct custodian transfer or by a timely rollover, generally within 60 days. If assets are distributed in kind, IRS guidance says the same property must be rolled over. Confirm the procedure and processing details with the custodians.
- Check the tax-year timing. The conversion is generally reported for the calendar tax year in which it is completed. Confirm the completion date with the custodian.
- Report it accurately. Custodians generally report the distribution and conversion on tax forms, but you are responsible for correctly reporting the taxable and nontaxable amounts on your return. Use Form 8606 when applicable, especially when you have basis.
Estimate the effect using your complete income and account information before initiating the transaction. The general IRS rules do not determine the best conversion amount for an individual.
Can you undo a Roth conversion?
Conversions made in tax years beginning after December 31, 2017, cannot be recharacterized as though they had been made to a traditional IRA. A regular contribution may have different recharacterization rules, but those do not reverse a conversion. Estimate the tax consequences before converting.
What if you withdraw converted money early?
A correctly completed conversion is generally not itself subject to the 10% additional tax on early distributions. However, if you withdraw converted taxable amounts within the five-tax-year period that begins with the conversion year, the 10% additional tax may apply if you are under age 59½, unless an exception applies.
This conversion-specific five-year period is distinct from the Roth IRA five-tax-year rule for qualified distributions of earnings. Qualified distributions generally require that five-tax-year period to be met and an applicable qualifying condition, such as reaching age 59½.
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FAQ
Can I convert a traditional IRA to a Roth IRA if my income is too high for a Roth contribution?
Generally, yes. The IRS says taxpayers may be able to convert traditional IRA amounts regardless of adjusted gross income. Conversion eligibility and regular Roth contribution eligibility are separate rules, and a conversion may create taxable income.
Is a Roth IRA conversion tax-free?
Not necessarily. The portion that would have been taxable as a traditional IRA distribution is generally included in income in the year of conversion. Documented after-tax basis is not taxed again, but the taxable share must be calculated under IRS rules.
Can I convert my required minimum distribution to a Roth IRA?
No. An amount required to be distributed as an RMD for the year cannot be converted. Take the RMD first; an eligible remaining amount may be considered for conversion.
Can I reverse or recharacterize a Roth conversion?
Conversions made in tax years beginning after December 31, 2017, cannot be recharacterized back to a traditional IRA. Review the tax consequences before completing one.
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What form do I use to report after-tax IRA basis?
Form 8606 is used in relevant cases to report basis and determine taxable and nontaxable IRA amounts. Use the instructions for the tax year at issue and retain your basis records.
IRS rules and forms can change. Consult current IRS guidance and an appropriately qualified tax professional for individual circumstances.
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