A Roth conversion is one of the few tax moves that allows a taxpayer to deliberately accelerate ordinary income into the current year — and to pay current tax in exchange for an asset (Roth dollars) that compounds tax-free for life and is exempt from RMDs. Conversions became more important after the Tax Cuts and Jobs Act of 2017 lowered tax brackets through 2025 (TCJA sunset). With brackets scheduled to revert in 2026 unless extended, conversion planning during low-rate windows is one of the highest-EV moves in retirement tax planning. This guide walks through 2026 conversion math, the pro-rata rule, IRMAA traps, and the strategies that minimize lifetime tax.
A conversion moves dollars from a pre-tax retirement account (Traditional IRA, SEP-IRA, SIMPLE IRA, or — via in-plan rollover or rollover-to-IRA — a traditional 401(k)) into a Roth IRA. The conversion triggers ordinary income tax on the pre-tax portion in the year of the conversion. Once in the Roth, future qualified withdrawals are tax-free, no RMDs apply during the original owner's lifetime, and the assets pass to beneficiaries tax-free.
| Rate | Single Taxable Income | MFJ Taxable Income |
|---|---|---|
| 10% | $0 - $11,925 | $0 - $23,850 |
| 12% | $11,925 - $48,475 | $23,850 - $96,950 |
| 22% | $48,475 - $103,350 | $96,950 - $206,700 |
| 24% | $103,350 - $197,300 | $206,700 - $394,600 |
| 32% | $197,300 - $250,525 | $394,600 - $501,050 |
| 35% | $250,525 - $626,350 | $501,050 - $751,600 |
| 37% | $626,350+ | $751,600+ |
Brackets shown reflect 2025 inflation-adjusted projections; 2026 may include TCJA sunset to higher rates (15%, 25%, 28%, 33%, 35%, 39.6%) unless Congress acts.
| 2024 MAGI Range | Part B Surcharge | Part D Surcharge | 2026 Total Premium Effect (est.) |
|---|---|---|---|
| $0-$106,000 | None | None | Standard |
| $106,001-$133,000 | +$70 | +$13 | ~$1,000/yr |
| $133,001-$167,000 | +$175 | +$33 | ~$2,500/yr |
| $167,001-$200,000 | +$280 | +$54 | ~$4,000/yr |
| $200,001-$500,000 | +$385 | +$75 | ~$5,500/yr |
| $500,001+ | +$420 | +$82 | ~$6,000/yr |
IRMAA is the most-overlooked Roth conversion cost. The two-year lookback means a 2026 conversion affects 2028 Medicare premiums. Crossing a tier with a $1 of extra income costs the full surcharge for that tier.
When you convert from a traditional IRA that contains both pre-tax and after-tax (basis) money, the tax-free portion is prorated by total basis across all your traditional IRAs.
Formula: Tax-Free % = (Total After-Tax Basis) / (Total Traditional IRA Value, Year-End)
Year-end value matters. Form 8606 calculates pro-rata using the December 31 balance of all traditional IRAs, not the balance at conversion date.
Facts: Single, MAGI $200,000, $0 in any traditional IRA, has $200,000 in 401(k). Wants to do a backdoor Roth.
Facts: Same as above but plaintiff also has $93,000 in Traditional IRA from prior 401(k) rollover. Contributes $7,000 non-deductible and converts $7,000.
Facts: Retired couple, ages 65 and 64. Living on $80,000/year of savings and dividends. Plans Social Security at 70. Has $1,200,000 in Traditional IRA. RMDs start at age 73 — projected RMD ~$45,000/year growing.
Conversion window analysis:
If your 401(k) allows after-tax (non-Roth) employee contributions plus in-service rollover or in-plan Roth rollover, you can shelter dollars far above the standard $23,000 employee deferral limit:
| 2024 Limit | Amount |
|---|---|
| Employee deferral (elective) | $23,000 ($30,500 if 50+) |
| Employer contribution | Up to $46,000 (varies by plan) |
| Total § 415 limit | $69,000 ($76,500 if 50+) |
| After-tax (non-Roth) room | $69,000 − employee deferral − employer = potentially $20,000-$46,000 |
The after-tax contribution is rolled (in-service or in-plan) to Roth, sheltering all future growth tax-free. 2026 limits will be inflation-adjusted.
Each conversion starts a separate 5-year clock for penalty-free withdrawal of the converted principal before age 59-1/2. Earnings withdrawal requires both age 59-1/2 AND the original Roth's 5-year-from-first-contribution clock. For older taxpayers (already 59-1/2), the conversion clock is irrelevant — withdrawals of converted principal are always penalty-free.
Before TCJA, taxpayers could "recharacterize" (undo) a Roth conversion until the extended return due date. TCJA 2017 permanently eliminated conversion recharacterization. Once you convert, you cannot reverse — making careful pre-conversion planning critical.
State income tax treats conversions like federal: ordinary income in the conversion year. Some states (PA, NJ) have complex treatment of retirement contributions vs withdrawals. High-tax states (CA, NY, NJ) materially raise conversion cost; moving to a no-tax state before conversion can save 5-13%. Florida and Texas residents save significantly.
A Roth conversion moves money from a pre-tax retirement account (Traditional IRA, SEP-IRA, SIMPLE IRA, traditional 401(k)) into a Roth IRA. The converted amount is included in taxable income for the year of conversion. After conversion, future qualified withdrawals (after age 59-1/2 and a 5-year holding period) are tax-free. There is no income limit on conversions, unlike direct Roth contributions.
The pre-tax portion of the converted amount is added to ordinary income for the conversion year. The conversion is taxed at your marginal federal income tax rate (10% to 37% in 2026) plus state income tax (0% to 13.3%). Any after-tax basis in the traditional account is converted tax-free. The pro-rata rule treats all your traditional IRAs as one pool for basis allocation.
Under IRC § 408(d)(2), when you convert traditional IRA funds containing both pre-tax and after-tax basis, the tax-free portion of the conversion is prorated based on the total basis vs total IRA value across ALL your traditional IRAs (including SEP and SIMPLE). You cannot 'cherry pick' which dollars convert. Solo 401(k) and employer plans are excluded from the aggregation pool.
A backdoor Roth involves making a non-deductible traditional IRA contribution ($7,000 base, $8,000 if 50+) and converting it to a Roth shortly afterward. Strategy works best when you have $0 in pre-tax traditional IRA money, because the pro-rata rule would otherwise tax most of the conversion. High earners ineligible for direct Roth contributions ($165,000+ MAGI single, $246,000+ MFJ in 2026) use this approach.
Available in plans that allow after-tax (non-Roth) 401(k) contributions and in-service distributions or in-plan Roth rollovers. Employee contributes after-tax 401(k) dollars (up to the $69,000 2024 § 415 limit minus pre-tax/Roth employee + employer contributions) and converts to Roth, sheltering up to $40,000+/year of additional Roth growth. Not all 401(k) plans permit it.
Best candidates: low-income years (early retirement before Social Security/RMD), expected higher tax bracket in retirement, large traditional balances, desire for estate-planning Roth inheritance, ability to pay conversion tax from outside the IRA. Avoid if: current high tax bracket and lower future bracket expected, no cash to pay tax outside the IRA, near Medicare IRMAA cliffs without planning.
Conversion income raises Modified Adjusted Gross Income (MAGI). IRMAA Medicare Part B/D premium surcharges kick in at MAGI thresholds (2026 single thresholds approximately $106K, $133K, $167K, $200K, $500K). A large conversion can push you across an IRMAA tier and add $700-$5,000/year in Medicare premiums for the conversion year and the next year (2-year lookback).
Each Roth conversion starts its own 5-year clock for penalty-free withdrawal of converted amounts before age 59-1/2. The clock is measured from January 1 of the year of conversion. A separate 5-year rule applies to qualified Roth withdrawals (tax-free earnings) — measured from your first Roth contribution, not conversion. Inherited Roths have their own rules under SECURE Act 2.0.