Roth conversions

A Roth conversion moves money from a traditional IRA or 401(k) into a Roth IRA. The amount you convert is added to your taxable income for the year and taxed at ordinary rates. From then on it grows tax-free, comes out tax-free in retirement, and has no required minimum distributions (traditional accounts require them from age 73).

There is no income limit and no cap on how much you can convert. That is the route in for people who earn too much to contribute to a Roth IRA directly (the 2026 phase-out starts at $153,000 single and $242,000 joint).

A conversion cannot be undone. If you have ever made nondeductible IRA contributions, part of each conversion is tax-free, and Form 8606 works out the share across all your IRAs.

Converting makes sense when your tax rate this year is lower than the rate you expect to pay when you withdraw. The usual case is a low-income year: early retirement before Social Security and required distributions start, a sabbatical, or a year between jobs.

The common target is the top of the 12% bracket. The bracket is measured after the standard deduction, so the table adds the two.

Subtract your other income from the last column and you have your conversion room for the year.

A conversion raises your MAGI, so check what else depends on it. The ACA premium credit ends above 400% of the poverty level in 2026. Long-term gains lose the 0% rate once taxable income passes $49,450 single or $98,900 joint. If you are 63 or older, a large conversion can raise your Medicare premiums two years later.

Each conversion has its own five-year clock, starting January 1 of the year you convert. Take converted money out before the five years are up and before age 59½ and you owe a 10% penalty on it (no income tax, since you already paid that). After 59½ the penalty no longer applies.

Earnings follow a separate clock. They come out tax-free once you are 59½ or older and at least five years have passed since you first funded any Roth IRA.

This is why a conversion ladder works for early retirees. Convert one year of spending every year, and five years later that money is available with no penalty, well before 59½.

Single, $30,000 of income in 2026, standard deduction. Taxable income is $13,900, past the top of the 10% bracket ($12,400). The 12% bracket ends at $50,400, so there is $36,500 of room. Converting $36,500 costs $4,380 in federal tax at 12%. Withdrawing the same $36,500 from a traditional IRA later at 22% would cost $8,030. State tax comes on top in most states.

• Form 1099-R: your custodian sends it in January showing the amount converted.
• Form 8606: report a conversion from an IRA in Part II. The same form tracks any nondeductible basis. Attach it to your return.
• Form 1040: the conversion goes on line 4a and the taxable part on line 4b (lines 5a and 5b if it came from a 401(k)).
• Estimated tax: have the custodian withhold nothing and make an estimated payment for the quarter you convert. Waiting until April can mean an underpayment penalty if you owe $1,000 or more.