Personal Finance & Estate › Retirement accounts & pensions › Individual Retirement Account (traditional IRA)
Roth conversion
Open to all since 2010· Concept or strategy
Depends on youExperts differ; the right answer depends on your situation.
Moving money from a pre-tax IRA or 401(k) into a Roth, paying income tax now for tax-free growth later.
See it on the Personal Finance & Estate map →How it works
The converted amount is taxed as ordinary income that year, federal and California. There's no 10% penalty, but each conversion starts its own five-year clock if you are under 59½. Income limits ended in 2010; undoing a conversion was banned in 2018. Common windows: low-income years after retiring but before Social Security and RMDs, or down markets. Main traps: the added income can raise Medicare IRMAA two years later and push other income into higher brackets.
Why it matters for you
Depends on you: it trades a known tax today for an unknown one later. Ask your CPA to model how much to convert each year.
Think of it like
Like buying out a ground lease: pay a large sum now so the future income is entirely yours.
Rules, limits and sources (2026)
IRC Sec. 408A(d)(3); the 2005 TIPRA law lifting income limits from 2010; the 2017 tax law ending recharacterizations; IRS Form 8606.
Watch out for
The answer turns on future tax rates and how long you or heirs hold the Roth; nobody knows the first.
Connections (2)
▸Roth conversion moves pre-tax money out of Individual Retirement Account (traditional IRA)Standard practice
How they connect
A conversion takes money out of a traditional IRA (or pre-tax 401(k)), reports it as taxable income, and deposits it in a Roth IRA. Any nondeductible basis comes over tax-free under the pro-rata rule. The traditional IRA shrinks, and so do its future RMDs.
When it applies
Allowed since Roth IRAs began in 1998 and open to all incomes since 2010; done through the custodian and reported on IRS Form 8606.
How sure?
IRC Sec. 408A(d)(3); custodians issue Form 1099-R for the withdrawal and Form 5498 for the Roth deposit.
Watch out for
How much to convert each year, and whether to pay the tax from the IRA or outside cash, are judgment calls for a CPA.
▸Roth conversion is best timed using Federal tax brackets (10%–37%)Depends on you
How they connect
A Roth conversion adds the converted amount to ordinary income, so its cost depends on which bracket it lands in. Many convert in low-income years, such as early retirement or a year with large depreciation, filling income up to the top of a chosen bracket. California taxes conversions too, up to 13.3%.
When it applies
Open to all incomes since 2010; the 2017 TCJA ended undoing ('recharacterizing') conversions starting in 2018.
How sure?
IRC Sec. 408A(d)(3); Form 8606 reports conversions; bracket thresholds come from the IRS annual revenue procedure.
Watch out for
Whether converting pays depends on future tax rates, heirs' brackets, Medicare IRMAA surcharges and a possible move out of California.