Converting a Traditional IRA to Roth: Timing and Tax Strategies

Quick overview

Converting a Traditional IRA to a Roth IRA converts funds from tax-deferred status (you paid no tax on contributions or growth) to tax-free status (you pay tax now, then future qualified withdrawals are tax-free). The conversion amount is generally included in taxable income for the year of conversion and must be reported on IRS Form 8606 (for nondeductible contributions and conversions) (IRS, Form 8606). You can’t recharacterize (undo) a Roth conversion made after 2017 — that option was removed by law (see IRS Roth IRA guidance).

This article explains practical timing, tax implications, and step-by-step planning strategies to help you decide whether and when to convert.

Why convert? The main benefits and trade-offs

• Tax-free withdrawals in retirement: Qualified Roth distributions are income-tax-free, which can reduce taxes on Social Security and lower required minimum distribution (RMD) exposure for beneficiaries. (Roth IRAs generally do not have RMDs during the original owner’s lifetime.)
• Tax diversification: Holding both pre-tax and after-tax accounts lets you manage taxable income in retirement and potentially lower lifetime taxes.
• Estate planning: Roth IRAs pass income-tax-free to beneficiaries (they still follow inherited-IRA rules), which can be an advantage in estate planning.

Trade-offs:

• Immediate tax bill: The conversion increases your taxable income for the year and can push you into a higher tax bracket, raise Medicare Part B/D premiums (IRMAA), or affect the taxation of Social Security and ACA subsidies.
• Timing risks: Converting in a high-income year often makes less sense than converting during lower-income years.

(Author note: In my practice I usually run a projection of converted amounts over a 3–5 year window to smooth taxable income and avoid bracket creep.)

Key tax rules and reporting you must know

• Conversion is taxable: Amounts you previously deducted (or pre-tax money) are taxed when converted. Non-deductible basis is tracked via Form 8606 (IRS Form 8606 page).
• No recharacterization of conversions made after 2017: You cannot undo a Roth conversion since tax year 2018 for conversions made after 2017 (check IRS Roth IRA pages for details).
• Five-year holding rule(s): There are separate five-year rules to be aware of: (1) Each conversion has its own five-year clock to determine whether withdrawals of converted principal avoid the 10% early distribution penalty; (2) To take tax-free qualified distributions of earnings, the Roth IRA owner’s first contribution or conversion must have occurred at least five years before the distribution and the owner must meet an age/exception requirement. See IRS Publication 590-B for details.
• RMDs: You cannot convert an RMD for the year — required minimum distributions must be taken before any conversion for that tax year (IRS Pub 590-B).

Sources: IRS Publication 590-A/B and IRS Roth IRA pages (irs.gov).

Practical timing strategies

1. Convert in low-income years

• Ideal times: early retirement years before Social Security and RMDs start, a year off work, or a year with a business loss. Converting in a year with unusually low taxable income lets you pay tax at lower marginal rates.
• See our piece on “Roth Conversion Strategies for Low-Income Years” for examples and step-by-step modeling (internal resource: Roth Conversion Strategies for Low-Income Years).

1. Partial, multi-year conversions

• Convert smaller chunks over multiple years to fill lower tax brackets without pushing yourself into a higher one. This reduces the risk of creating a large single-year tax spike.
• Use a projection to estimate the optimal annual conversion amount — many clients convert exactly to the top of a target bracket.

1. Use years with deductible losses or credits

• A year with capital losses, large itemized deductions, or tax credits can offset a conversion’s tax cost. But always run the numbers because some credits phase out with higher AGI.

1. Roth laddering for early retirement

• If you plan to retire early and need tax-free income before age 59½, a Roth conversion ladder (converting and then waiting five years for penalty-free access to converted amounts) can be a tool. Plan conversions and waiting periods carefully to avoid penalties and mis-timed distributions.

1. Consider Medicare and Social Security interactions

• A large conversion can raise MAGI and therefore increase Medicare Part B/D premiums (IRMAA) for up to two years or increase taxable Social Security benefits. Simulate these impacts before converting.

Step-by-step conversion process

1. Estimate taxable income without conversion (project AGI, taxable income, and marginal rates).
2. Decide conversion amounts and schedule (single-year vs. staged conversions).
3. Confirm state tax treatment — some states tax conversions differently or exempt them; others fully tax conversions.
4. Instruct your custodian to convert: you can do an in-kind transfer (move investments as-is) or a cash conversion (sell then convert). Evaluate transaction costs and tax timing.
5. Pay the tax from outside the IRA if possible: Using outside funds preserves the IRA balance and avoids a 10% early-withdrawal penalty if you’re under 59½.
6. File Form 8606 for the year of conversion to report the basis and taxable amount.

Watch-outs and common mistakes

• Not using Form 8606: Failing to file Form 8606 can cause IRS penalties and incorrect tax treatment of distributions.
• Ignoring the pro-rata rule for nondeductible contributions: If you have other traditional IRAs with pre-tax money, conversions are subject to the pro-rata rule — you can’t convert only the after-tax portion unless you’ve consolidated. See our article on the Pro-Rata Rule for Backdoor Roth IRA Conversions for a practical explanation and examples (internal resource: Pro-Rata Rule for Backdoor Roth IRA Conversions).
• Counting on recharacterization: You cannot undo conversions made after 2017. Plan carefully rather than relying on an undo option.
• Paying taxes from the converted account: Paying conversion tax from IRA funds reduces the converted balance and, if under age 59½, creates distribution penalties and lost future tax-free growth.

How conversions affect tax brackets and means-tested benefits

Conversions increase adjusted gross income (AGI) and modified adjusted gross income (MAGI), which can:

• Push you into a higher federal tax bracket for the year and increase state taxes;
• Increase the taxable portion of Social Security benefits;
• Raise Medicare Part B and D premiums (IRMAA) and affect ACA premium subsidies.

Before converting, model both the tax-bracket outcome and the downstream impacts on benefits. Our internal guide “How Roth Conversions Affect Your Tax Bracket” offers formulas and scenarios to help with that analysis (internal resource: How Roth Conversions Affect Your Tax Bracket).

When to avoid converting

• Short-term high-income spikes (big bonus year) where the conversion would be taxed at a high marginal rate.
• If you expect future tax rates to be lower and you have no estate or longevity concerns, the immediate tax cost may outweigh the benefit.
• If you lack cash to pay the tax without tapping retirement funds.

Example scenarios (illustrative)

• Mid-career professional: Converting enough each year to fill the 12% or 22% bracket can lock in low rates and limit bracket creep.
• Early retiree (no earned income, before Social Security): Convert larger amounts in the early retirement years when taxable income is minimal and RMDs haven’t started.
• High-balance IRA owner near RMD age: Consider partial conversions before RMDs begin; remember RMDs themselves cannot be converted and must be taken first.

Recordkeeping and compliance

• Keep records of all Form 8606 filings and conversion confirmations.
• Track each conversion’s date for five-year rule purposes.
• Document tax payments used to pay conversion taxes if paid from outside accounts.

Practical tips from my advisory practice

• Run simulations for the next 5–10 years including projected Social Security, Medicare premiums, and RMDs.
• Prefer paying conversion taxes from taxable accounts, not the IRA.
• Consider state residency timing: converting while a resident of a no-income-tax state (or before moving to a higher-tax state) can save state income tax.

Closing checklist

• Project income and tax brackets for the conversion year.
• Determine conversion amounts and schedule partial conversions if needed.
• Confirm you will not rely on recharacterization — plan irrevocably.
• File Form 8606 the year you convert and keep copies.
• Consult a CPA or fee-only financial planner for personalized modeling.

Sources and further reading

• IRS Publication 590-A and Publication 590-B (Contributions and Distributions): https://www.irs.gov/publications/p590a and https://www.irs.gov/publications/p590b
• IRS Roth IRAs overview: https://www.irs.gov/retirement-plans/roth-iras
• IRS Form 8606 (Nondeductible IRAs): https://www.irs.gov/forms-pubs/about-form-8606

Internal related articles

• How Roth Conversions Affect Your Tax Bracket: https://finhelp.io/glossary/how-roth-conversions-affect-your-tax-bracket/
• Roth Conversion Strategies for Low-Income Years: https://finhelp.io/glossary/roth-conversion-strategies-for-low-income-years/
• Pro-Rata Rule for Backdoor Roth IRA Conversions: https://finhelp.io/glossary/pro-rata-rule-for-backdoor-roth-ira-conversions/

Professional disclaimer: This article is educational and does not constitute personalized tax or financial advice. Laws can change; consult a tax professional or CPA before executing a Roth conversion.