Plan and execute a Roth IRA conversion by understanding the rules, calculating the tax impact, exploring partial conversions, and working around income limits with backdoor strategies.
Know that anyone can convert Traditional IRA funds to Roth regardless of income
Unlike Roth IRA contributions, there is no income limit for conversions. This is the foundation of the backdoor Roth strategy used by high earners above the $161,000 (single) or $240,000 (married) contribution limits.
Understand that converted amounts are taxed as ordinary income in the conversion year
Converting $50,000 from a Traditional to a Roth IRA adds $50,000 to your taxable income for that year. In the 24% bracket, that's $12,000 in additional federal tax. State taxes apply on top of that.
There is no annual limit on conversion amounts
You can convert $1,000 or $1,000,000 in a single year. The only constraint is the tax bill. Large conversions can push you into a higher bracket, so strategic sizing matters.
Conversions cannot be reversed (recharacterization of conversions was eliminated in 2018)
Before 2018, you could undo a conversion. That's no longer allowed. Once you convert, the tax bill is final. This makes careful planning before converting critical.
Calculate the Tax Impact
Determine your current marginal tax bracket and how much room remains before the next bracket
If your taxable income is $80,000 (single, 22% bracket), you have about $20,000 of room before hitting the 24% bracket at $100,525. Converting exactly $20,000 keeps the entire conversion in the 22% bracket.
Estimate the total federal and state tax on your planned conversion amount
A $30,000 conversion in the 22% federal bracket with a 5% state rate costs roughly $8,100 in combined taxes ($6,600 federal + $1,500 state). Have this cash available from non-retirement funds to pay the bill.
Medicare Part B and Part D premiums increase at income thresholds. Crossing $103,000 (single) adds about $70 per month in premiums. A large conversion could cost you $840-$4,200 in annual surcharges 2 years later.
Verify the conversion won't make Social Security benefits taxable if you're collecting
Up to 85% of Social Security becomes taxable when combined income exceeds $34,000 (single) or $44,000 (married). A $20,000 conversion could push you over these thresholds, creating a secondary tax hit.
Plan a Partial Conversion Strategy
Convert just enough to fill up your current tax bracket each year
If you have $200,000 in a Traditional IRA and $20,000 of bracket space annually, convert $20,000 per year over 10 years. This keeps all conversions in the 22% bracket instead of pushing into 24% or higher.
Identify low-income years ideal for larger conversions
A year between jobs, a sabbatical, or early retirement before Social Security starts may drop you to the 12% bracket. Converting $40,000-$50,000 in a 12% year saves thousands versus converting in a 22% or 24% year.
Model a multi-year conversion plan and compare total taxes paid
Spreading $200,000 over 5 years at $40,000 per conversion might cost $44,000 in total taxes. Converting all at once could cost $58,000+ due to bracket creep. Run both scenarios before committing.
Understand the 5-Year Rule
Know that each conversion has its own 5-year clock for penalty-free access
If you convert $20,000 in 2024, that specific amount is penalty-free to withdraw after January 1, 2029. A 2025 conversion has a separate clock ending January 1, 2030. Only the 10% penalty is at stake—income tax was already paid.
The 5-year rule does not apply if you are 59.5 or older at withdrawal
Once you reach 59.5, the early withdrawal penalty disappears entirely. The 5-year rule only matters for early retirees or those accessing converted funds before 59.5.
Track each conversion year and amount separately for withdrawal planning
Withdrawals follow ordering rules: contributions first, then conversions (oldest first), then earnings. Keep a simple spreadsheet with conversion dates and amounts so you know when each block becomes penalty-free.
Execute a Backdoor Roth (for High Earners)
Contribute to a non-deductible Traditional IRA ($7,000 for 2024)
There's no income limit for Traditional IRA contributions—only for the tax deduction. High earners can still contribute $7,000, they just don't get a tax deduction. This is step one of the backdoor.
Convert the Traditional IRA to a Roth IRA promptly
Convert within days or weeks to minimize taxable gains. If you contribute $7,000 and it grows to $7,050 before conversion, only the $50 gain is taxable. The $7,000 in non-deductible contributions is tax-free on conversion.
Beware the pro-rata rule if you have other Traditional IRA balances
If you have $93,000 in a Traditional IRA and contribute $7,000 non-deductible, the IRS treats 93% of any conversion as taxable. To avoid this, roll existing Traditional IRA money into your 401(k) before doing a backdoor Roth.
File IRS Form 8606 to report non-deductible contributions and conversions
Form 8606 tracks your non-deductible IRA contributions so you're not double-taxed. File it every year you make a non-deductible contribution or convert. Failing to file can result in a $50 penalty per missed form.
Timing and Execution
Convert early in the year to maximize tax-free growth time
A January conversion gives the converted amount 11 more months of tax-free growth than a December conversion. On $50,000 at 7% returns, that's roughly $3,200 in additional growth in the first year.
Consider converting during market downturns when account values are lower
Converting $50,000 of stock that was worth $70,000 means you pay tax on $50,000 instead of $70,000. When the market recovers, all that growth happens inside the Roth tax-free.
Pay the conversion tax from non-retirement funds, not from the converted amount
If you convert $50,000 and withhold $11,000 for taxes from the conversion, only $39,000 goes into the Roth. The $11,000 withheld also triggers a 10% penalty ($1,100) if you're under 59.5. Always pay taxes from a separate account.
Increase estimated tax payments or W-4 withholding to cover the additional tax
The IRS requires you to pay at least 90% of your tax liability through withholding or estimates. A surprise $10,000 tax bill in April could also trigger an underpayment penalty of 3%-5%. Adjust your W-4 or send a quarterly estimated payment.
Frequently Asked Questions
How much tax will I pay on a Roth conversion?
The converted amount adds to ordinary income at your marginal rate. Converting $50,000 at 22% costs about $11,000 in federal taxes plus state taxes. Convert in low-income years (job transition, early retirement, sabbatical) to fill lower brackets. Partial conversions of $10,000-$30,000 annually over multiple years often produce better outcomes than one large conversion.
What is the 5-year rule for Roth conversions?
Each conversion has its own 5-year clock for penalty-free withdrawal if under 59.5. The clock starts January 1 of the conversion year, so converting in December 2025 means access January 1, 2030. After 59.5, the 5-year rule no longer applies. Roth contributions (not conversions) can be withdrawn anytime penalty-free. This distinction is critical for early retirees using conversion ladders.
What is a backdoor Roth IRA and is it legal?
Yes, confirmed by Congress. Contribute to a non-deductible Traditional IRA, then convert to Roth, bypassing income limits. The critical requirement: zero pre-tax IRA balances to avoid the pro-rata rule (which taxes a proportional share of all IRA funds). If you have existing Traditional IRA balances, consider rolling them into your 401(k) first. Consult a tax professional before executing.
When is the best time to do a Roth conversion?
Best years: temporarily low income (early retirement, job gaps, large deduction years, before RMDs start at 73). Market downturns are also ideal since you convert more shares at lower values. Avoid years when extra income would trigger Medicare IRMAA surcharges (above $103,000 single) or the 3.8% net investment income tax.