How to do a Roth conversion in 2026: step-by-step + tax-bracket math

What a Roth conversion does

Money in a traditional 401(k) or IRA is "tax-deferred": no tax paid on the contribution, tax-deferred growth, and ordinary income tax on every dollar withdrawn at retirement. Money in a Roth: tax PAID on the contribution, tax-free growth, tax-free qualified withdrawals.

A Roth conversion crosses this line. You "convert" some or all of your pre-tax balance to Roth in a given tax year. The converted amount is added to your AGI for that year and taxed as ordinary income. From the day of conversion forward, the converted balance and all its future growth are Roth (tax-free at qualified withdrawal).

Why do this? Three big reasons:

1. Tax arbitrage: if your current bracket is lower than your retirement bracket, pay tax now. The 12-22 percent gap between current and expected retirement brackets is the most common opportunity (early retirement, sabbatical, between jobs, low-income year).
2. RMD avoidance: traditional IRA/401(k) require minimum distributions starting at age 73 (75 for those born 1960+). RMDs spike your taxable income in your 70s. Roth has NO RMD during your lifetime.
3. Estate planning: heirs inheriting a Roth IRA get 10 years of tax-free growth + tax-free withdrawals (SECURE Act 10-year rule). Heirs inheriting a traditional IRA owe ordinary income tax on every dollar in 10 years.

There is no annual conversion limit. You can convert $5K or $5 million in a single year. The constraint is your willingness and ability to pay the tax bill.

Bracket-fill: the sweet spot math

2026 federal brackets (single, ordinary income)

• 0 percent on standard deduction $15,000
• 10 percent: $15,000 to $26,925 (top of $11,925 + $15K SD)
• 12 percent: up to $63,475
• 22 percent: up to $118,350
• 24 percent: up to $212,300
• 32 percent: up to $265,525

A 60-year-old retiree with $50,000 Social Security and pension income (taxable: $42,500 after standard deduction) sits at the top of the 12 percent bracket. They can convert an additional $21,000 and stay within the 12 percent bracket. Converting $21,000 costs $2,520 in tax (12 percent), creates a Roth that grows tax-free, and shrinks the future RMD base by $21,000.

Same retiree could "convert up the 22 percent bracket" up to $118,350 of taxable income - an additional $54,000 of conversion at 22 percent ($11,880 tax), still avoiding the 24 percent bracket.

Married filing jointly (2026)

• 0 percent on $30,000 standard deduction
• 10 percent: up to $53,850
• 12 percent: up to $126,950 ($96,950 + $30K SD)
• 22 percent: up to $236,700
• 24 percent: up to $424,600

A retired couple with combined SS+pension of $80,000 can convert another $46,950 in the 12 percent bracket without crossing into 22. Over a decade of bracket-fill conversions: $470,000 of Roth created at an average cost of 12 percent vs the 22-32 percent they would have paid at RMDs starting age 73.

State tax matters too. California adds 9.3 percent at the same income level. Texas, Florida, Tennessee, Nevada, Washington, Wyoming, South Dakota, New Hampshire, Alaska: 0 percent state. Conversion before moving to a state-tax state, or after moving to a no-tax state, is a real planning tactic.

The five-year rule and qualified distributions

Each Roth conversion has its OWN 5-tax-year clock for tax-free withdrawal of the CONVERSION amount (not the growth). The clocks:

Clock 1 - Roth IRA contributions: 5 years from the YEAR of your FIRST Roth IRA contribution. Once met (and over age 59-and-a-half), all qualified withdrawals tax-free.

Clock 2 - Roth conversions: each conversion has a separate 5-year clock. Before 5 years pass AND under 59-and-a-half, withdrawing the conversion principal triggers the 10 percent early withdrawal penalty (not income tax, since you already paid that).

Clock 3 - Inherited Roth IRA: 10-year rule under SECURE Act applies; withdrawals must be made within 10 years of original owner death, but distributions remain tax-free if the 5-year contribution rule was met by the original owner.

Practical impact: most conversion strategies happen at age 55+ when retirement is in sight. The 5-year clocks usually expire before any actual withdrawals are needed.

Exception: Roth conversion ladders for FIRE. Pre-59-and-a-half retirees convert $X each year, then withdraw that converted amount tax-free and penalty-free 5 years later. Need a 5-year cash bridge to start.

For inheritance: if you convert at 70 and die at 80, the heir gets 10 years to withdraw, fully tax-free. Pure tax-free legacy.

Pro-rata rule and Backdoor Roth interactions

The pro-rata rule (Section 408(d)(2)) treats ALL your traditional IRAs as one pool when calculating the taxable portion of a Roth conversion.

Example: $10,000 in a non-deductible traditional IRA (basis) plus $90,000 in a deductible traditional IRA. Convert $10,000 to Roth. The conversion is 10 percent basis ($1,000) and 90 percent pre-tax ($9,000). You owe ordinary income tax on $9,000.

This kills the Backdoor Roth IRA for anyone with significant pre-tax IRA balances. The "Backdoor" works because: (a) you make a non-deductible $7,000 contribution to a traditional IRA, (b) immediately convert to Roth, (c) the $7,000 is all basis so tax-free. The pro-rata rule turns this into a partial tax hit.

Three fixes:
1. Roll your pre-tax IRA INTO your employer 401(k) (which is not subject to pro-rata). Then the only traditional IRA is the basis-only Backdoor money.
2. Convert the entire pre-tax IRA to Roth this year - bear the big tax bill once, get permanent Backdoor access.
3. Skip Backdoor and use Mega Backdoor (after-tax 401(k) -> Roth) instead, if your plan allows it.

Note: the SEP-IRA and SIMPLE IRA are also "traditional IRAs" for pro-rata purposes. Solo 401(k) is NOT (it is a 401(k)).

Form 8606 tracks your basis across years. File it every year you make non-deductible IRA contributions or do Roth conversions, even if you do not owe additional tax.

Common mistakes

1. Converting without considering ACA premium credit eligibility. Adding $50K AGI can push you over 400 percent FPL and eliminate the entire premium credit (clawback).
2. Converting in your highest-income year. Wait for a sabbatical, business loss, or retirement year.
3. Withholding from the conversion. This reduces the Roth deposit (only the net hits Roth). Pay tax from outside funds.
4. Forgetting the IRMAA 2-year lookback. Conversion at age 63 increases your 2028 Medicare Part B+D surcharge.
5. Converting through a year-end rollover, missing the December 31 deadline. Conversions completed by 12/31 count for THIS tax year. January 1+ counts for next.
6. Trying to "undo" a conversion. The Tax Cuts and Jobs Act eliminated recharacterizations of conversions in 2018. Once done, irrevocable.
7. Missing the pro-rata rule and getting surprised at tax filing. Run the calculation before pulling the trigger.
8. Ignoring state tax. Some states (PA, NJ, MA) have complicated rules; others (NY, NJ) tax-deferred retirement income differently than the IRS.
9. Converting too aggressively and not having tax money. Always set aside the cash before clicking.
10. Not stacking with QCD (Qualified Charitable Distribution) post-70-and-a-half. QCDs from traditional IRA satisfy RMD without adding to AGI; pair with conversion strategy.