Understanding Roth Conversions: What You Need to Know
September 12, 2025
Shifting funds from a pre-tax retirement account—such as a traditional IRA or 401(k)—into a Roth IRA or Roth 401(k) can offer powerful long-term benefits. While you do owe income tax on the amount you convert, once the money is inside a Roth account, qualified withdrawals are generally tax-free. That not only helps maximize your after-tax income in retirement but also gives you more control over your tax strategy.
Another appealing feature: Roth IRAs have never required minimum distributions (RMDs), and beginning in 2024, the same rule now applies to Roth 401(k)s. This makes Roth accounts attractive tools for both tax management and estate planning.
So why think about a conversion now? One reason is market conditions. If stock prices dip, converting when your account value is lower could mean paying less tax on the amount converted.
There’s also the uncertainty of future tax law. Today’s rates may not last forever, and a conversion under the current rules could save you money compared with waiting until tax rates rise.
Common Questions About Roth Conversions
Can I move funds from a traditional 401(k) into a Roth 401(k)?
Yes—if your plan offers a Roth 401(k) and allows in-plan conversions. Taxes may still apply depending on the type of contributions being converted.
Can I roll money from a traditional 401(k) to a Roth IRA?
In many cases, yes. This can be done directly through a rollover, or indirectly by moving funds first to a traditional IRA and then converting to a Roth IRA. Some plans even allow in-service withdrawals while you’re still working.
What if I earn too much to contribute to a Roth IRA?
Income limits only apply to contributions—not conversions. If you’re ineligible to contribute directly, you may still be able to make a nondeductible contribution to a traditional IRA and then convert it to a Roth, a strategy often called a “backdoor Roth.”
How do I estimate the taxes due on a conversion?
For tax purposes, all of your traditional IRAs are treated as one account. The taxable amount depends on how much of your IRA balance comes from deductible (pre-tax) versus
nondeductible (after-tax) contributions. Earnings are always taxable upon conversion. The IRS requires you to apply a pro-rata formula—you cannot convert only the nondeductible portion to avoid taxes.
This hypothetical example is for illustrative purposes only. It shows how to figure out what part of an IRA conversion is taxable income.
Can I ease the tax burden of a conversion?
Yes. For example, charitable contributions can sometimes offset taxable income. If you itemize, donations to qualifying organizations may be deductible, though deduction limits apply. Because the rules can be complex, it’s best to map out your charitable and tax strategies with a professional advisor.
Does timing matter?
It can. Converting early in the year gives you more time to prepare for the tax bill, but waiting until later provides a clearer picture of your annual income, which may help you stay within a preferred tax bracket. Remember: conversions must be completed by December 31 for that year’s tax return, and the IRS “5-year rule” for accessing converted balances starts on January 1 of the conversion year, no matter when the transaction occurs.
Can I keep my current investments during a conversion?
Yes. You can move securities directly from a traditional IRA into a Roth IRA without selling them first. For tax purposes, it makes no difference whether you transfer investments in-kind or convert cash.
Final Thoughts
Roth conversions can provide long-term tax flexibility and reduce the impact of RMDs on your retirement plan. But because the decision involves taxes and future income projections, working with a tax or financial advisor is key to making the most of the opportunity.
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Disclosure:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
This material is provided as a courtesy and for educational purposes only.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.