Kevin Dick
Posted on Mar. 12, 2026
A Roth conversion is a strategy where you voluntarily pay taxes on retirement savings now in exchange for tax-free growth and tax-free withdrawals later. Whether a Roth conversion strategy makes sense for you depends on your current tax situation, expected future income, and long-term retirement goals.
Defining a Roth Conversion
There are two basic types of retirement accounts: traditional and Roth. The main difference between the two is how they are taxed:
- Traditional accounts are considered tax-deferred. As the name implies, contributions are made with pre-tax dollars (or are deductible), meaning taxes are deferred until the money is withdrawn in retirement. Upon withdrawal, the funds are taxed as ordinary income.
- Roth account contributions are made with after-tax dollars, meaning you do not receive a tax deduction. However, the money still grows tax-deferred and can be withdrawn tax-free in retirement.
A Roth conversion occurs when an investor moves the money from a traditional retirement account into a Roth IRA. Because the money in a traditional account has not yet been taxed, the amount converted becomes taxable income in the year the conversion is executed. The primary motivation behind a Roth conversion is simple: an investor chooses to pay taxes on money today, so they don’t have to pay taxes on that money in the future. There are many situations where a Roth conversion strategy may be beneficial, which we will explore later in this article.
How it Works
Roth conversions most commonly occur between traditional IRAs and Roth IRAs, however it’s possible to execute a conversion from pre-tax employer-sponsored retirement plans (such as (401(k)s). Although, rules vary from plan to plan so many investors rollover the balance to a traditional IRA prior to converting to Roth.
The general Roth conversion process typically follows these steps:
- Decide how much to convert – Unlike annual IRA contributions, there is no IRS limit on the amount you can convert. However, the converted amount will be added to your taxable income for the year, so investors often convert strategically to avoid moving into a higher tax bracket.
- Move the funds from the traditional IRA to the Roth IRA – This transfer can usually be completed directly between the two accounts through the financial institution that holds the IRA.
- Report the conversion on your tax return – The converted amount is reported as taxable income for the year in which the conversion occurs.
Many investors choose to convert only a portion of their IRA each year, allowing them to spread the tax liability across multiple years rather than triggering a large tax bill all at once.
Backdoor Roth Conversions (For High Earners)
The IRS sets annual contribution limits for the total amount an individual can directly contribute across all their IRAs, and the ability to do so begins to phase out at certain income levels. This means that once an individual earns above the final income threshold, they’re no longer eligible to contribute to a Roth IRA.
However, there is a commonly used workaround known as the backdoor Roth conversion. [1]
Backdoor Roth conversions are utilized by investors whose income is too high to contribute directly to a Roth IRA. The strategy works because the IRS restricts Roth contributions based on income, but it does not restrict Roth conversions based on income. This allows high earners to bypass the contribution restriction using a Roth conversion.
The backdoor Roth conversion process goes as follows:
- Make a non-deductible contribution to a traditional IRA – Intentionally contribute money to a traditional IRA, knowing you will not take the deduction when you file your taxes. You’re allowed to do so up to the annual contribution limit ($7,500 in 2026, $1,100 for those age 50+).
- Convert the money into a Roth IRA – Using the same basic process as outlined in the previous section, transfer the money from the traditional IRA to a Roth IRA. Because your original contribution to the traditional IRA was made with after-tax dollars, there are usually no further tax implications (assuming the money doesn’t appreciate between the date you fund it and the date you convert).
When considering a backdoor Roth conversion, it’s important to be aware of the pro rata rule. This rule requires the IRS to treat all of an investor’s traditional IRA balances as one combined account when determining the taxable portion of a conversion. As a result, backdoor Roth conversions generally work best when the investor has no other pre-tax IRA balances. Otherwise, you could end up paying additional taxes on money that wasn’t designated for the conversion. The pro rata rule does not apply to 401(k)s or other pre-tax employer-sponsored retirement plans, however.
It’s also worth noting that the standard backdoor Roth conversion isn’t the only strategy available. Some investors may have access to variations like the “mega backdoor Roth,” which involves making after-tax contributions to an employer-sponsored retirement plan and converting those funds to a Roth account. While these approaches can be powerful, they come with additional rules and complexity, so they’re best evaluated in the context of your overall financial plan.
[1] For a more detailed breakdown of backdoor Roth strategies—and the nuances and complexities that come with them—check out our full backdoor Roth article linked here (coming soon).
When a Roth Conversion Might Make Sense
There are many scenarios where a Roth conversion strategy may be beneficial. Some of the most common situations include:
- You expect to be in a higher tax bracket in the future, so you would rather pay income taxes on the money now.
- You temporarily have lower income than normal in a particular year, so you’re in a lower tax bracket than usual.
- You want the option of tax-free income in retirement, which provides you with flexibility when planning for taxes alongside other income sources like Social Security or pension income.
- You want to reduce future Required Minimum Distributions (RMDs). Traditional IRAs require mandatory withdrawals beginning in your early seventies, while Roth IRAs are not subject to RMDs.
- You want to leave tax-efficient assets to heirs. Once an IRA is inherited, most non-spouse beneficiaries must withdraw the entire balance within 10 years of the original owner’s death, which can easily push them into high tax brackets if the funds are pre-tax. Roth IRA withdrawals, however, are tax-free, allowing beneficiaries to avoid such tax implications.
Potential Drawbacks to Consider
While Roth conversions can be powerful planning tools, they aren’t always the right choice for every investor. For example, large Roth conversions can push investors into higher income tax brackets, so they need to be prepared to pay higher taxes in the year the conversion occurs. Roth conversions can also affect other areas of a financial plan, such as Medicare premiums or eligibility for certain tax deductions and credits. In addition, there are nuanced tax rules specific to IRAs and Roth conversions—such as the pro rata rule and the 5-year rule—that can easily be overlooked if an investor is not careful.
Because of these factors, Roth conversions are most effective when they are carefully planned out as part of a broader tax and financial strategy. When executed without considering the long-term implications, large or poorly timed conversions can create unnecessary tax burdens and disrupt both short and long-term financial goals.
This content is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.