How Much Tax Do You Pay on a Roth IRA Conversion?

A Roth IRA can offer a powerful tax advantage for retirement savers: tax-free withdrawals during retirement. Unlike traditional IRAs, which provide an immediate tax deduction but tax your withdrawals later, Roth IRAs are funded with after-tax dollars and allow your investments to grow tax-free. This difference is the key to understanding why Roth conversions are a popular strategy for retirement planning.

Converting a traditional IRA to a Roth IRA means paying taxes now in exchange for tax-free income later. In the year you convert, the amount moved into the Roth is treated as taxable income. You’ll owe income tax on any pretax dollars you convert. ​The exact tax bill depends on your current income tax bracket and how the conversion amount affects your overall taxable income.

Understanding Roth IRA Conversions

A Roth IRA conversion involves transferring funds from a traditional IRA to a Roth IRA, thus shifting the money from tax-deferred to tax-free growth status. You can convert all or part of your traditional IRA, paying income tax on the converted amount now, since Roth IRAs accept only after-tax dollars. There are no income limits for conversions, making this a strategy often used by high earners who can’t contribute directly to a Roth.

Converting to a Roth IRA is worthwhile if you expect to be in a higher tax bracket in retirement or want to avoid required minimum distributions (RMDs).

Tax Implications

A Roth IRA conversion means the amount converted will be added to your taxable income and taxed at your ordinary income tax rate. The U.S. tax system has rates from 10% to 37% in 2025, so conversions can push income into higher brackets. For example, if you’re in the 22% bracket, the conversion is taxed at 22% until you reach the next bracket threshold.

If the conversion raises your income beyond a bracket, the excess is taxed at the higher rate. To reduce the impact, you can spread conversions over multiple years or convert during years when your income is lower.

How To Calculate the Taxes on a Roth Conversion

Here are the steps for figuring out the taxes on a Roth conversion, which can also help you determine if it’s worthwhile:

1. Calculate your taxable income without the conversion by adding wages, investment income, and other sources, then subtract deductions to identify your current tax bracket and rate.
2. Decide how much from your traditional IRA you want to convert to a Roth.
3. Add the conversion amount to your taxable income to find your new total taxable income for the year.
4. Tax the portion of the conversion that falls within your original bracket at the corresponding rate.
5. Tax any amount that pushes you into a higher bracket at the higher rate.
6. Add the taxes from each bracket to find the total tax owed on the conversion.

Example

Suppose you’re in the 22% marginal tax bracket and convert $20,000 from a traditional IRA to a Roth. That adds $20,000 to your taxable income for the year. If that $20,000 stays within the 22% bracket, you’ll owe about $4,400 in conversion tax (22% of $20,000). 

However, if the last $5,000 of that conversion crosses into the next bracket (24%), that portion would be taxed at 24%. You’d pay 22% on $15,000 and 24% on $5,000. This works out to $3,300 + $1,200 = $4,500 in taxes. The higher your conversion amount, the more likely it will “bracket jump” and incur some tax at the next rate.

Converting to a Roth IRA can push your income into a higher tax bracket, but only the amount exceeding the bracket cutoff is taxed at that higher rate.

How To Complete Your Roth IRA Conversion

Once you’ve used the tax calculation steps to determine how much you want to convert, follow these steps to execute your Roth IRA conversion:

1. Develop Your Conversion Strategy

• Review your entire financial picture to determine if partial conversions over multiple years make more sense than a single large conversion.
• Set conversion thresholds that keep you within your target tax bracket to avoid unnecessary tax spikes.
• Identify the best timing based on your income fluctuations, potential tax law changes, or major life events.

2. Prepare for the Tax Bill

• Set aside dedicated funds to cover the conversion tax liability, keeping these separate from your retirement accounts.
• Adjust tax withholdings from your paycheck or make estimated quarterly tax payments to avoid underpayment penalties.

3. Set Up Your Accounts

• Open a Roth IRA if you don’t already have one.
• Contact your current IRA custodian to inform them of your conversion plans and understand their specific process.
• Verify all account details are correct before proceeding to avoid delays or processing errors.

4. Make the Conversion

• Request a direct trustee-to-trustee transfer (the recommended method) rather than taking possession of the funds yourself.
• Ensure the transaction is properly coded as a “Roth conversion” rather than a distribution or rollover.
• Confirm that no tax withholding occurs during the transfer—you want to convert the full amount and pay taxes separately.

5. Manage Your Investments

• Decide whether to keep the same investments or use the conversion as a chance to reallocate your portfolio.
• Document the conversion date for each portion converted to track the five-year rule requirements.

6. Complete Tax Reporting

• File Form 8606 with your tax return to report the conversion.
• Ensure your 1099-R forms correctly reflect the conversion rather than a distribution.
• Keep detailed records of your basis in any nondeductible traditional IRA contributions that affect your conversion’s taxable amount.

7. Track Your Conversion History

• Maintain a conversion calendar that documents exactly when each conversion was completed.
• Save all confirmation statements from both your traditional and Roth IRA custodians.
• Create a file with all tax forms and records related to your conversions for future reference when making withdrawals.

Strategies To Improve the Tax Impact

Roth IRA conversions have complex tax implications, so consulting a financial or tax advisor is often a good idea. “It can be helpful to consult a tax or financial advisor who can help you decide if and when a conversion might benefit you,” Marcus Sturdivant Sr., a financial advisor and chief compliance officer at ABC Squared, told Investopedia.

Sturdivant recommends the following strategies to manage the tax impact of converting to a Roth IRA:

• Use outside funds to pay the tax: Using your IRA funds to cover conversion taxes reduces your retirement savings and may trigger penalties if you’re under 59½. Instead, you can set aside cash in a high-yield savings account to pay the tax bill, allowing your full IRA amount to grow tax-free after conversion.
• Time your conversions: Convert in years when your income is lower to minimize the tax hit. Spreading conversions over several years (a “ladder” approach) helps avoid higher tax brackets and smooths out your tax liability.
• Consider current and future tax rates: Weigh whether paying taxes now or later is more worthwhile based on your expected retirement income.
• Strategize asset choices: Convert specific assets, such as stocks at depressed values, to lower your taxable amount and maximize future tax-free growth.
• Plan for the five-year rule: Each converted amount must stay in the Roth IRA for five years (or until you’re 59½) to avoid penalties, so ensure you won’t need those funds soon.

Benefits of a Roth IRA Conversion

Several long-term benefits can make a Roth IRA conversion worthwhile:

• Tax-free growth and withdrawals: Once you’ve paid taxes on the conversion, all future investment growth accumulates tax-free.
• Hedge against future tax rate increases: If you believe tax rates will rise in the future, whether because of government policy changes or your own higher income bracket in retirement.
• No RMDs: Unlike traditional IRAs that force withdrawals starting at age 73 (increasing to 75 by 2033), Roth IRAs have no RMDs during your lifetime. 
• Greater retirement income flexibility: Roth withdrawals don’t count as taxable income, which can help reduce taxes on your Social Security benefits and keep your Medicare premiums lower.
• Estate planning advantages: Your beneficiaries inherit the account tax-free, allowing them to make tax-free withdrawals over their lifetimes.
• Access for high-income earners: For individuals whose income exceeds Roth IRA contribution limits, conversions provide a “backdoor” method to access Roth benefits. 

The Bottom Line

Converting a traditional IRA to a Roth IRA triggers a tax bill based on your income and tax bracket in the conversion year, as the converted amount is taxed as ordinary income. By carefully timing conversions and spreading them over years with lower income, you can manage the tax impact and potentially avoid pushing yourself into higher brackets.

The long-term benefits include tax-free growth and withdrawals, no RMDs, and greater flexibility in managing your retirement income.