Roth conversions, explained

How a Roth conversion works

A conversion is simply a transfer: pre-tax retirement dollars move into a Roth account. Because pre-tax dollars were never taxed on the way in, the IRS treats the converted amount as ordinary income in the year of the conversion. You can convert any amount, in any year — there is no income limit and no annual cap on conversions (unlike contributions).

Three things change once the money is inside the Roth: it grows tax-free, qualified withdrawals are tax-free, and there are no required minimum distributions during the original owner's lifetime. That combination is what makes the Roth valuable — you trade a known tax bill today for decades of untaxed growth.

The tax a conversion creates

The converted amount stacks on top of your other income and is taxed at your marginal federal rate (plus state). A large lump-sum conversion can push you through several brackets at once. For a household already in the 32–37% federal range, converting $500,000 can mean a federal tax bill well into the six figures in a single year, before state tax.

Two details matter for high earners: the conversion itself is not subject to the 3.8% Net Investment Income Tax, but the higher income can pull your other investment income into NIIT — and a conversion at 63 or older can raise the income that sets your Medicare IRMAA surcharge two years later. The calculator models all of this.

When converting makes sense (and when it doesn't)

The core trade is rate-now versus rate-later. Conversions tend to favor you when:

• You expect to be in the same or a higher tax bracket in retirement (common for diligent savers facing large future RMDs).
• You have a low-income window — early retirement before Social Security and RMDs begin — to convert cheaply.
• You can pay the conversion tax from outside funds, so the full balance keeps compounding.
• You want to shrink future RMDs, leave tax-free money to heirs, or hedge against higher future rates.

It works against you if you will be in a much lower bracket later, if you must raid the account to pay the tax, or if a large conversion triggers IRMAA or other phase-outs that outweigh the benefit. There is rarely a single right answer — it is a math problem specific to your numbers.

The two five-year rules

People conflate these constantly; they are separate.

• The conversion five-year rule. Each conversion has its own five-year clock. Withdraw converted principal before five years and before age 59½ and you may owe the 10% early-withdrawal penalty on it (you already paid income tax at conversion).
• The qualified-distribution five-year rule. To withdraw earnings tax-free, your first Roth IRA must have been open at least five years and you must be 59½ or older (or meet another exception).

For someone over 59½ with an established Roth, neither is usually a problem. For early converters, the clocks are worth planning around.

The pro-rata rule

If you hold any pre-tax money across all your traditional, SEP, and SIMPLE IRAs, the IRS won't let you cherry-pick only after-tax dollars to convert. Every conversion is treated as a proportional blend of pre-tax and after-tax money across those accounts. This is the rule that trips up "backdoor Roth" attempts when there's a large pre-tax IRA in the background. (401(k) balances are generally excluded from the calculation while they remain in the plan.)

Backdoor & mega-backdoor Roth

Two conversion-adjacent moves let high earners fund a Roth even above the income limits:

• Backdoor Roth: contribute to a non-deductible traditional IRA, then convert it. Clean only if you have little or no other pre-tax IRA money (see the pro-rata rule).
• Mega-backdoor Roth: if your 401(k) allows after-tax contributions and in-plan conversions, you can route tens of thousands more into Roth each year, up to the overall plan limit ($72,000 in 2026, including employer money).

We cover both in depth in the advanced strategies guide.

Partial conversions & bracket-filling

You don't have to convert everything at once. "Bracket-filling" means converting just enough each year to reach the top of a target bracket without spilling into the next — spreading a large balance over several low-income years to keep the blended rate down. Done in early-retirement gap years, this is often the most efficient route. The trade-off: the longer you wait, the more the un-converted balance grows (and gets taxed later). The calculator's "spread over time" line lets you test this.

The high-earner problem — and how offsets solve it

For high earners, the long-term Roth benefit is clear; the obstacle is the six-figure tax bill today. The strategies this site documents attack that bill directly by generating deductions in the same year you convert, so the conversion income is partly or fully absorbed:

• Strategic energy deductions — intangible drilling costs from an oil & gas working interest, deductible as an ordinary loss under IRC §263(c).
• Leveraged real estate conversion — converting a self-directed IRA when its net equity (and therefore the taxable amount) is suppressed.

Both are educational illustrations of how the code works, not recommendations — and both carry real investment risk. Always model them with your CPA.

2026 figures at a glance

Limits are inflation-adjusted annually — confirm the current year's figures with the IRS or your CPA before acting.