What to Know Before Converting a Traditional IRA to a Roth IRA
A Traditional IRA to Roth IRA conversion can be useful tax planning, but the transfer itself is the easy part. The harder question is what the conversion does to your federal and California tax return that year. The taxable portion generally becomes ordinary income and can affect your tax bracket, Medicare premiums, Social Security taxation, estimated taxes, and other income-based calculations.
For many taxpayers, the better question is not simply, “Should I convert?” It is, “How much should I convert this year?”
A Roth Conversion Creates a Tax Decision Today
A Roth conversion moves money from a Traditional IRA into a Roth IRA. Unlike a regular Roth IRA contribution, a conversion is not prevented just because your income is above the Roth contribution income limits. The conversion also does not use up your normal annual IRA contribution limit.
The tradeoff is that previously untaxed Traditional IRA dollars generally become taxable when converted. In return, qualified Roth IRA distributions can be tax-free later, and Roth IRA owners generally are not required to take lifetime RMDs.
That does not make a Roth conversion automatically beneficial. You are choosing taxable income now in exchange for potentially different tax treatment later. The answer depends on current and expected future income, age, IRA basis, California taxes, and how you will pay the conversion tax.
Why the Tax Projection Should Come Before the Conversion
A tax projection should estimate wages, business income, pensions, Social Security, capital gains, deductions, filing status, and the proposed conversion. This matters because Roth conversions completed after 2017 generally cannot be recharacterized back into a Traditional IRA.
The practical rule is simple: project first, convert second.
How Much of a Roth Conversion Is Taxable?
If your Traditional IRA contains only deductible contributions, pre-tax rollovers, and tax-deferred earnings, a conversion is relatively straightforward. The amount converted is generally included in gross income to the extent it would have been taxable if distributed instead.
Suppose you convert $40,000 from an IRA funded entirely with pre-tax dollars. In a simplified example, the full $40,000 generally becomes ordinary income. The conversion is added to your other income, so different portions can fall into different marginal brackets.
Nondeductible Contributions and Form 8606
The calculation changes when you previously made nondeductible Traditional IRA contributions. Those contributions create basis because you already paid income tax on that money. Form 8606 is used to report nondeductible contributions, track basis, report conversions, and determine how much of a distribution or conversion is taxable.
If you made nondeductible contributions years ago, prior Forms 8606 and supporting records matter. Missing records may require your preparer to reconstruct basis before relying on it.
Why the Pro-Rata Rule Can Surprise Taxpayers
One common mistake is assuming you can convert only the after-tax money in one IRA while leaving all pre-tax IRA money untouched.
The IRS calculation generally looks at your Traditional IRAs together when determining the taxable and nontaxable portions. For Form 8606 purposes, Traditional IRA treatment can also involve SEP and SIMPLE IRAs.
For a simplified illustration, assume your relevant IRAs effectively contain $100,000, including $10,000 of documented after-tax basis. If you convert $10,000, you generally cannot assume the conversion is tax-free. Roughly 10% may be nontaxable and 90% taxable, subject to the actual Form 8606 calculation. This can surprise business owners who also hold SEP or SIMPLE IRA assets.
A Partial Roth Conversion May Give You More Control
You do not have to convert an entire Traditional IRA at once. A partial conversion can give you more control over how much taxable income you recognize in a particular year.
For 2026, the federal individual income tax system continues to use the seven marginal rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The income thresholds vary by filing status.
For example, the 24% bracket for married couples filing jointly begins above $211,400 of taxable income in 2026. A couple projecting $180,000 of taxable income may find that a smaller conversion keeps more income within the 22% bracket than a larger conversion would. A real projection still must account for deductions, capital gains, Medicare, Social Security, and California taxes.
Lower-Income Years Can Create Planning Opportunities
The years after retirement but before RMDs begin can be worth evaluating because income may be lower. The same may be true in a year with lower business profits or unusually large deductions. That does not mean you should automatically “fill up” a bracket. Several smaller conversions over multiple years may simply produce a more manageable result than one large conversion.
Roth Conversions Can Affect More Than Your Income Tax Bill
A conversion can change adjusted gross income and modified adjusted gross income, which means the analysis should extend beyond the tax on the IRA itself.
Medicare IRMAA
Medicare beneficiaries with income above certain thresholds can pay an Income-Related Monthly Adjustment Amount, commonly called IRMAA, on Part B and Part D coverage. Social Security generally uses tax-return information from two years earlier when determining the premium adjustment. For example, 2026 IRMAA amounts generally use 2024 tax information.
A conversion can affect a future Medicare premium calculation if the resulting MAGI crosses an applicable threshold. Not every conversion causes IRMAA, but taxpayers already near a threshold should include it in the projection.
Social Security and Other Income-Sensitive Tax Items
Additional conversion income may affect how much of your Social Security is taxable, income-based deductions or credits, and the estimated tax or withholding you need.
The conversion itself is not automatically subject to the 3.8% Net Investment Income Tax, but higher MAGI can affect whether other net investment income is subject to it.
California Adds Another Layer
California generally begins with the federal treatment of IRA distributions, but the California Franchise Tax Board warns that the taxable amount of an IRA distribution, including a Traditional IRA to Roth IRA conversion, can differ when California IRA basis differs from federal basis. Historical deduction differences and certain self-employment situations can create those differences.
For taxpayers in San Martin, Morgan Hill, Gilroy, South San Jose, and elsewhere in the South Bay, a conversion projection should include both federal and California consequences. For more context, see Understanding California's Current Tax System.
RMDs and the Roth Five-Year Rules Matter Before You Convert
Retirees also need to coordinate Roth conversions with required minimum distribution rules.
You Cannot Convert Your Required Minimum Distribution
The IRS states that amounts required to be distributed from a Traditional IRA for a particular year cannot be converted to a Roth IRA. If you are subject to an RMD, that year's required amount generally needs to be satisfied before additional eligible Traditional IRA dollars are converted.
Under current law, the applicable RMD age is 73 for people who reach age 73 before 2033, while the applicable age increases to 75 for people who reach age 74 after 2032.
That can create a planning window between retirement and RMD age, when some taxpayers have more control over how much IRA income to recognize.
Roth IRA Owners Generally Avoid Lifetime RMDs
Traditional IRAs generally are subject to lifetime RMD rules once the owner reaches the applicable age. Roth IRAs generally are not while the original owner is alive, although beneficiaries can face distribution requirements.
Reducing future Traditional IRA balances can be useful, but that benefit must be weighed against today's conversion tax.
There Is More Than One Five-Year Rule
The phrase “Roth five-year rule” causes a lot of confusion because different five-year concepts can apply.
One rule helps determine whether Roth IRA earnings are part of a qualified distribution. Generally, qualified Roth IRA distributions require the applicable five-tax-year period plus another qualifying condition such as reaching age 59½.
A separate rule can apply to taxable amounts converted to a Roth IRA and later withdrawn before age 59½. The IRS states that a separate five-year period applies to each conversion or rollover for purposes of the potential additional tax on early distributions.
So the blanket statement that “converted money is locked up for five years” is not accurate. Age, withdrawal ordering rules, and the source of the Roth dollars all matter.
What Should You Review Before Converting?
A good analysis starts with complete records. Your preparer may ask for prior federal and California returns, Forms 8606, Forms 5498 if available, Traditional, rollover, SEP and SIMPLE IRA balances, pension and Social Security information, current-year income estimates, RMD calculations, expected gains, and the proposed conversion amount.
Clean records make basis easier to verify. Missing Forms 8606, old nondeductible contributions, or multiple rollovers can require follow-up before the taxable amount is reliable.
A tax projection should answer several practical questions before you authorize the conversion:
How much of the proposed conversion is expected to be taxable?
Which federal marginal brackets will the conversion reach?
What additional California tax may result?
Could the conversion affect Medicare IRMAA or other income-sensitive items?
Will you need additional withholding or estimated tax payments?
Is your documented IRA basis complete and accurate?
Would a smaller conversion create a better tax result this year?
If you need help reviewing the tax impact, KY Tax Service & Bookkeeping's tax and accounting services can help you evaluate the conversion as part of your overall tax picture rather than as an isolated retirement-account transaction.
Conclusion: Should You Convert a Traditional IRA to a Roth IRA?
A Traditional IRA to Roth IRA conversion can make sense when paying tax today is expected to produce a better long-term result, but there is no universal answer. Current income, future taxes, IRA basis, age, RMDs, Medicare, California taxes, and available cash all matter.
For many taxpayers, the better question is how much to convert in a particular year.
If you are considering a significant conversion, KY Tax Service & Bookkeeping can review the projected federal and California impact before you move the money. Contact KY Tax Service & Bookkeeping to discuss the transaction while you still have planning choices.
This article is for educational purposes and does not provide individualized tax or investment advice. Roth conversion results depend on your specific financial and tax circumstances.
Frequently Asked Questions
Do I have to pay taxes when I convert a Traditional IRA to a Roth IRA?
Generally, the portion representing previously untaxed contributions and earnings is included in taxable income for the year of conversion. If you have legitimate after-tax IRA basis, Form 8606 is used to help determine the taxable and nontaxable portions.
Is there a limit on how much I can convert to a Roth IRA?
A Roth conversion is not limited by the normal annual IRA contribution limit. You can potentially convert part or all of an eligible Traditional IRA, but a large conversion can create a substantial current-year federal and state tax bill.
Can I convert only part of my Traditional IRA?
Yes. Partial Roth conversions are allowed and can give you more control over how much taxable income is recognized in a particular year. Many taxpayers evaluate conversion amounts against projected tax brackets and other income-sensitive consequences.
Can I convert my required minimum distribution to a Roth IRA?
No. The IRS states that an amount required to be distributed under the RMD rules cannot be converted to a Roth IRA. Additional eligible IRA assets may potentially be converted after the year's RMD requirement has been addressed.
Does California tax a Roth IRA conversion?
California generally taxes the taxable portion of a Traditional IRA to Roth IRA conversion. However, California and federal IRA basis can differ in some circumstances, so older contribution and deduction records may need to be reviewed before assuming the taxable amounts are identical.
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