Roth IRA Conversion: Rules, What to Know for 2025
Wondering how to move funds from another retirement account into a Roth IRA? Here’s what you need to know.
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What is a Roth IRA conversion?
A Roth IRA conversion is the process of transferring funds from a pretax retirement account, such as a traditional IRA or a 401(k), to a Roth IRA. The conversion requires paying taxes on the funds in the year they’re transferred, but future growth and withdrawals will be tax-free.
Pros and cons of Roth IRA conversions
Roth conversions are often done to take advantage of Roth benefits such as no required minimum distributions and the ability to withdraw conversions after five years without taxes. This flexibility allows people to optimize their retirement savings and goals for their specific needs.
Pros
Investment earnings grow tax-free
Can reduce tax bills in retirement.
Can help avoid required minimum distributions.
Cons
Can generate big upfront tax bill.
Money must stay in the account for at least five years to get tax benefit.
Can temporarily put you in a higher tax bracket.
Can affect Medicare premiums.
A Roth IRA conversion could be right for you if...
- You like the idea of your investment earnings growing tax-free.
- You want the ability to lower your taxable income in retirement.
- You think your tax rate in retirement may be higher than it is now.
- You want to avoid required minimum distributions.
A Roth IRA conversion might be wrong for you if...
- You lack the cash to pay the likely tax bill generated by the conversion, or you may need to pay the tax bill with part of the converted amount, as it would sacrifice some of the tax-free investment growth.
- You need the money in the next five years.
- The rollover will subject you to a higher marginal tax bracket in the year of the switch.
- You want to avoid being moved into higher Medicare premiums.
How to do a Roth conversion
1. Open a Roth IRA
If you already have a traditional IRA, there's a good chance you can open a Roth IRA with the same institution. But if you still need to open an account, here's how to open a Roth IRA.
2. Decide what money you're converting
- If you're converting a traditional IRA to a Roth IRA, this process is also known as a backdoor Roth IRA.
- If you're converting funds from a 401(k) to a Roth IRA, this process is also known as a mega backdoor Roth.
3. Obey the steps
To stay in sync with IRS rules, you must follow specific steps to do a Roth conversion. Here are three options for converting a traditional IRA to a Roth IRA.
- Indirect rollover: You receive a distribution from a traditional IRA and contribute it to a Roth IRA within 60 days.
- Trustee-to-trustee or direct rollover: You tell the financial institution holding your traditional IRA assets to transfer an amount directly to the trustee of your Roth IRA at a different financial institution.
- Same-trustee transfer: If your traditional and Roth IRAs are maintained at the same financial institution, you can tell the trustee to transfer an amount from your traditional IRA to your Roth IRA.
» Ready to get started? See our picks for the best Roth IRA providers
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How a Roth conversion works
Here are some key factors to know about how a Roth conversion could affect you financially, now and later.
Taxes. A Roth conversion can raise your tax bill in the year the conversion takes place. That’s because you’ll need to “give back” any tax breaks you got when you made your traditional IRA or 401(k) contributions.
- The amount you convert, as well as any earnings, are taxable as ordinary income.
- Depending on the amount you convert, this could also push you into a higher tax bracket.
- That higher income could also affect Medicare premiums, Social Security taxes and whether you qualify for tax breaks such as the additional senior tax deduction or the SALT tax deduction.
You may also be able to do a rollover of a 401(k), 403(b) or other employer-sponsored retirement fund to a Roth if you are no longer working for the company, but as with the traditional-IRA-to-Roth rollover, you’re likely to trigger a tax bill here, too, unless you’re starting with a Roth 401(k).
Five-year withdrawal rule. If you are under age 59 ½, your Roth conversions and earnings must stay in the account for five years before they can be withdrawn tax- and penalty-free.
- If you withdraw too early, this can result in taxes and penalties of up to 10%.
- This rule applies to every conversion you make. (Learn more about how the five-year rule for Roth IRAs works.)
No recharacterizations. Once you’ve made a Roth IRA conversion, you’re not able to move the money back into a different retirement account.
No required minimum distributions (RMDs). The IRS requires people to take distributions from their traditional IRAs once they turn 75 unless they were born before January 1, 1960, in which case the RMDs begin at age 73. Roth IRAs don’t have RMDs, which means you aren’t required to make withdrawals after a certain age. That allows the money to keep growing.
No income limits. While contributing directly to a Roth IRA depends on your modified adjusted gross income (MAGI), anyone can complete a Roth conversion and keep adding to the account via future conversions.
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4 ways to minimize taxes on a Roth conversion
You can't necessarily avoid taxes when doing a Roth conversion, but there are ways to reduce the bill.
- Convert in low-income years. Maybe you switched jobs, had a period of unemployment or didn’t qualify for your usual bonus. Being in a lower tax bracket reduces the cost of the conversion.
- Convert when the market is down. If the market takes a hit and your IRA feels the aftershock, that could be an opportune time to launch this strategy. You could pay taxes on a smaller balance and then allow the money to potentially rebound after it's inside the a Roth IRA, where it can be withdrawn tax-free later.
- Convert early in the tax year. Taxes don’t have to be paid in full until the filing deadline (usually in mid-April the following year), so converting early in the calendar year gives you more time to pay Uncle Sam. (If you pay estimated taxes, you might have to make payments sooner.)
- Spread conversions over multiple years. You do not have to convert your full balance all in one go. (This strategy of pacing out conversions annually is called a Roth conversion ladder.) You can’t, however, only convert the portion of your balance that wouldn’t be taxed, such as nondeductible contributions.
» Need a pro? See our list of the best financial advisors
Frequently asked questions
What other kinds of Roth conversions can you do?
You can convert from any type of retirement account into a Roth IRA, including SEP IRAs or SIMPLE IRAs.
- There is a two-year waiting period for SIMPLE IRAs from when you first participated in the plan before the funds can be rolled over into a Roth IRA.
- You can do a Roth conversion from an employer-sponsored retirement account such as a 403(b) plan.
- You can convert up to $35,000 of a 529 plan to a Roth IRA if certain criteria are met.
Where can you do a Roth IRA conversion?
Any financial institution that offers Roth IRAs can help with a Roth IRA conversion. Our list of best Roth IRA accounts could help give you a place to start your search. We evaluated brokers for factors such as customer support, account fees, retirement planning tools, and investment selection, but you may be looking for something specific.
Why can’t I use part of my Roth conversion to pay for taxes?
You can use part of your conversion to pay for taxes, but it isn’t generally recommended. Withdrawing your retirement funds could trigger a 10% penalty for early withdrawals if you’re under age 59 ½.
» Learn more: Withdrawal rules for Roth IRAs.
Is the deadline for a Roth conversion the same as the deadline for making Roth IRA contributions?
No, these two deadlines are different.
- You have until the April filing deadline to make a Roth IRA contribution for the current tax year.
- You have until Dec. 31 to complete a Roth IRA conversion for the current tax year.
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