Roth Conversions and the Backdoor Roth

A Roth conversion moves money from a pre-tax retirement account, such as a traditional IRA, into a Roth IRA. You pay income tax on the converted amount now in exchange for tax-free growth and, if you meet the rules, tax-free withdrawals later. There is no income limit on conversions, which is why they matter for people who earn too much to contribute directly. But the tax bill is real, and several rules make the details important.

How a conversion works

You can withdraw all or part of a traditional IRA and reinvest it in a Roth IRA within 60 days, or do a direct trustee-to-trustee transfer. The IRS calls the amount you move a conversion contribution. The 10% additional tax on early distributions does not apply to a properly completed conversion. But the part that would have been taxable if you had kept the money is included in your gross income for the year. You report the conversion on Form 1099-R and Form 8606.

Some things to know:

• Required minimum distributions cannot be converted. If you are old enough to owe an RMD for the year, take it first. Age 73 is the starting point for most people.
• You cannot reverse a conversion. Conversions made in 2018 and later cannot be recharacterized back to a traditional IRA. Run the tax projection first.
• Taxes can be paid from outside funds or by withholding. Paying the tax from the converted money reduces the amount that goes into the Roth, and may be subject to the 10% early distribution tax if you are under 59½. Because tax is not withheld automatically, you may need to adjust withholding or make estimated tax payments.
• Workplace plans. Many 401(k) and 403(b) plans allow an in-plan Roth conversion or a rollover to a Roth IRA, but the rules depend on the plan.

The pro-rata rule and the backdoor Roth

If you have never made nondeductible contributions, the full conversion is taxable. If you have made nondeductible contributions, you have "basis," tracked on Form 8606. The taxable part of any distribution or conversion is figured by comparing your basis to the total value of all your traditional, SEP and SIMPLE IRAs at year-end. You cannot choose to convert only the after-tax dollars.

Example 1: Priya has $93,000 of pre-tax money in traditional IRAs and $7,000 of nondeductible basis, for $100,000 total. She converts $7,000. Because 93% of her IRA total is pre-tax, about $6,510 of the conversion is taxable and only $490 is tax-free.

The "backdoor Roth" is the strategy of making a nondeductible traditional IRA contribution and converting it, for people whose income is above the Roth contribution limit. If there are no other pre-tax IRAs, the conversion is mostly tax-free. If there are, the pro-rata rule can make part of it taxable. Many people with high incomes check this first. See IRA and 401(k) contributions.

The two five-year rules

1. For tax-free earnings. A Roth IRA distribution is "qualified" and tax-free if it is made after the five-year period beginning with the first tax year for which you made a contribution to any Roth IRA, and you are 59½ or older, disabled, a beneficiary after death, or buying a first home (up to a $10,000 lifetime limit).
2. For the 10% additional tax on converted amounts. If you take a distribution within five years of the first day of the year of a conversion, the amount attributable to the taxable part of that conversion can face the 10% additional tax if you are under 59½, with exceptions. A separate five-year period applies to each conversion.

Distributions come out in a set order: regular contributions first, then conversions on a first-in, first-out basis, then earnings.

Planning points

• Fill up lower brackets. Many people convert only up to the top of a lower bracket. For 2026, the 12% bracket for a single filer ends at taxable income of $50,400. See tax brackets and rates.

Example 2: A single retiree has $45,000 of taxable income in 2026 before any conversion. The 12% bracket tops out at $50,400, so converting about $5,400 would stay in the 12% bracket (about $648 of federal tax). Converting more would be taxed at 22% on the excess.

• Watch other income-based items. A conversion raises your AGI and modified AGI. That can reduce items that phase out with income, such as the $6,000 enhanced senior deduction, which shrinks by 6% of modified AGI above $75,000 ($150,000 joint). It can also pull more of your Social Security benefits into taxable income and affect other thresholds. See new deductions for tips, overtime and seniors and Social Security benefits taxation.
• Timing. It is October. The conversion is taxed in the year the money is distributed from the traditional IRA, so a 2026 conversion needs to be done by December 31, 2026. Waiting until you have a good estimate of your full-year income can help, and custodians often need lead time near year-end.
• State tax. The Illinois Department of Revenue allows a subtraction for federally taxed retirement income from IRAs reported on Form 1040 line 4b. Check how that applies to a conversion before relying on it. See our Illinois guide.

Common mistakes

• Forgetting other pre-tax IRAs when doing a backdoor Roth.
• Not filing Form 8606 for nondeductible contributions.
• Converting an RMD amount.
• Converting without cash set aside to pay the tax.
• Assuming the conversion can be reversed.

How we can help

We model the tax on different conversion amounts, check the pro-rata calculation and prepare Form 8606. See tax planning and our page for seniors and retirees, or contact us.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.