TL;DR
A Roth conversion moves money from a pre-tax account (a traditional IRA or 401(k)) into a Roth, where you pay ordinary income tax now in exchange for tax-free growth and tax-free withdrawals later [1].
Conversions get marketed as a retiree move. The dynamics that make one worth doing, a temporarily low tax rate plus decades of tax-free compounding, often fit a millennial in a low-income year better than they fit anyone else.
A conversion only makes you money one way: by paying a lower tax rate now than you would have paid later. Everything else is noise.
In 2026, a single filer can convert up to the top of the 12% bracket at $50,400 of taxable income, or the top of the 22% bracket at $105,700, without spilling into a higher rate [4].
There is no income limit on conversions, which is why high earners use the "backdoor Roth." But the pro-rata rule can turn that move into a surprise tax bill if you have other pre-tax IRA money [15].
You have been doing the responsible thing. Money goes into the 401(k) every paycheck. Maybe you opened a traditional IRA a few years ago because someone said you should. And yet you're not sure if what you're doing is right, because nobody ever sat you down and explained what happens to all that pre-tax money when you actually need it.
Here is the part most people never hear: every dollar in your traditional 401(k) and traditional IRA is money you have not paid tax on yet. The IRS is a silent partner in those accounts, and it collects when you withdraw. A Roth conversion is how you buy that partner out early, on your terms, in a year you choose.
What a Roth Conversion Actually Is
A conversion takes money sitting in a pre-tax account and moves it into a Roth IRA. You pay ordinary income tax on the converted amount in the year you do it, and the IRS treats it as current-year income [12]. After that, the money grows tax-free, and qualified withdrawals in retirement come out tax-free [1]. You report the conversion on Form 8606 [1].
This is the same tax question behind the Roth vs. traditional decision, with one twist. A conversion lets you make that choice years after the money is already invested, in a year when the math might be in your favor.
The Part Everyone Gets Wrong: This Isn't a Retiree Move
Search "Roth conversion" and you will find a thousand articles aimed at a 62-year-old who just retired, has a few years of low income before Social Security and required minimum distributions kick in, and wants to fill those years with conversions [11]. That strategy is real and it works. The problem is that it has convinced an entire generation that conversions are something to think about at 60.
Two things make a conversion pay off: a tax rate that is temporarily low, and a long runway for the converted money to grow tax-free. A 35-year-old who takes a year off to start a business, goes back to school, takes extended parental leave, or gets laid off has both. Their income drops into a low bracket for a year, and they have 30 years of compounding ahead of them. That combination is hard to beat.
There has been no income limit on conversions since 2010 [3]. Anyone can do one, at any income, in any year.
The Only Reason a Conversion Makes Money
A conversion is not magic. It makes you money in exactly one situation: when the tax rate you pay now is lower than the rate you would have paid later. That's it. If your rate is the same now and later, a conversion is a wash. If your rate is higher now, a conversion costs you money.
So the whole game is finding a year when your rate is low. Here is what that looks like with real numbers. Assume a 35-year-old has a low-income year and converts $25,000 while sitting in the 12% bracket. The tax bill is $3,000, paid from cash on hand rather than from the account itself [11].
That $25,000 now grows inside the Roth, untaxed. Assuming an all-equity (100% stock) portfolio with a 10% nominal return, 3% inflation, and a 6.7961% real return, after 30 years that $25,000 grows to $179,723 in today's dollars, every dollar of it tax-free.
Now compare. Had that same balance stayed in the traditional account and been taxed at 22% on withdrawal in retirement, the tax owed on it would have been $39,539. You paid $3,000 to erase a $39,539 bill. That gap is the rate arbitrage, and it is the entire point [9].
The Bracket-Fill Move (2026 Numbers)
The smartest version of this is surgical. You convert only enough to reach the top of your current bracket, and not one dollar more, because the dollar that spills into the next bracket gets taxed at the higher rate [9].
Here are the 2026 brackets for a single filer [4][5]:
12% bracket: taxable income up to $50,400
22% bracket: $50,400 to $105,700
24% bracket: $105,700 to $201,775
So if you have a low-income year with $30,000 of taxable income, you have $20,400 of room left in the 12% bracket. You could convert up to $20,400 and pay just 12% on it. If you earn $90,000 and your taxable income lands around $73,900 after the $16,100 standard deduction, you sit in the 22% bracket with $31,800 of headroom before you hit 24% [4]. That headroom is your conversion budget. (The Hub 6 tax guide walks through how the brackets stack.)
Backdoor Roth: For When You Earn Too Much
Once your income climbs past the Roth contribution limit, $153,000 for single filers and $242,000 for married couples filing jointly in 2026, you can no longer contribute to a Roth IRA directly [16]. The workaround is the backdoor Roth: you make a nondeductible contribution to a traditional IRA (the 2026 limit is $7,500), then convert it to a Roth shortly after [15].
There is a trap, and it is the reason this move goes wrong. The pro-rata rule requires you to aggregate all of your traditional, SEP, and SIMPLE IRA balances when calculating how much of a conversion is taxable [15]. If you have a $50,000 rollover IRA from an old 401(k) sitting alongside your new $7,500 nondeductible contribution, the IRS treats your conversion as a blended mix of pre-tax and after-tax dollars, and most of it becomes taxable. You track the after-tax basis on Form 8606 [17].
The Catches Worth Knowing
It's permanent. Since 2018, you can no longer reverse, or "recharacterize," a conversion [2][17]. Once it's done, it's done, so model the tax hit before you pull the trigger.
Pay the tax from outside cash. Paying the bill from the converted account shrinks what grows tax-free, and if you're under 59½ it can trigger a 10% penalty on the part you used to cover taxes [11].
Each conversion starts its own five-year clock. The clock begins on January 1 of the conversion year. Pull converted principal before five years and before age 59½, and a 10% penalty applies even though you already paid the income tax [13][15].
The deadline is December 31, not April 15. A conversion has to be completed by year-end to count for that tax year [14].
What To Actually Do
Find your low-rate year. Look ahead at any year your income will dip: a sabbatical, a business launch, a return to school, parental leave, or a gap between jobs.
Calculate your bracket headroom. Estimate your taxable income, then find the distance to the top of your current bracket using the 2026 numbers above.
Convert up to that ceiling, not past it. Treat the headroom as your budget.
Pay the tax from cash, never from the account being converted.
If your income is over the Roth limit, look at the backdoor, and clear out any pre-tax IRA balances first so the pro-rata rule doesn't bite [15].
Put the converted dollars to work in a low-cost, broadly diversified investment such as a total-market index fund like the Vanguard Total Stock Market ETF (VTI), so the tax-free growth has something to grow on.
File Form 8606 and leave converted principal alone for five years if you're under 59½.
If you want the full year-end version of this, our Tax Optimization Checklist breaks down every move worth making before December 31, and it goes out to newsletter subscribers each fall. The retirement guide puts the conversion question in the context of your whole plan.
The reason this matters has nothing to do with beating the IRS for sport. A pile of tax-free money in retirement is control. It's the freedom to draw income without watching every withdrawal push you into a higher bracket, the room to travel or help your kids or walk away from work on your timeline. Every conversion you make in a low-rate year is a vote for the version of retirement you actually want.
So here's the question worth sitting with: do you know what tax bracket you'll be in next year, and is there any chance it's lower than the one you'll retire in?
Frequently Asked Questions
Do I have to convert my whole IRA at once? No. You can convert any portion you want, and you can spread conversions across several years to keep each year's tax hit manageable and inside a target bracket [11][9].
Is there an income limit on Roth conversions? No. Income limits on conversions were removed in 2010 [3]. This is different from the income limit on direct Roth contributions ($153,000 single, $242,000 married filing jointly in 2026), which is exactly why higher earners use a conversion to fund a Roth [16].
When is the deadline to do a conversion? A conversion must be completed by December 31 to count for that tax year [14]. There is no April 15 grace period the way there is for contributions.
Can I undo a conversion if my income ends up higher than I expected? No. Conversions made in 2018 or later cannot be recharacterized or reversed [2][17]. This is why you estimate your full-year income before converting, and often wait until late in the year when your numbers are clearer.
References
Retirement Plans FAQs Regarding IRAs, Internal Revenue Service. https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras
Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), Internal Revenue Service. https://www.irs.gov/publications/p590a
IRS Reminds Taxpayers to Report 2010 Roth Conversions (IR-2013-21), Internal Revenue Service. https://www.irs.gov/pub/irs-news/IR-13-021.pdf
IRS Releases Tax Inflation Adjustments for Tax Year 2026, Internal Revenue Service. https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill
2026 Tax Brackets and Federal Income Tax Rates, Tax Foundation. https://taxfoundation.org/data/all/federal/2026-tax-brackets/
Rev. Proc. 2025-32: Inflation Adjustments for 2026, Individual Taxpayers, KPMG. https://kpmg.com/us/en/taxnewsflash/news/2025/10/tnf-rev-proc-2025-32-inflation-adjustments-for-2026-individual-taxpayers.html
Revenue Procedure 2025-32, Internal Revenue Service. https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
Tax Laws and Tax Brackets 2026, U.S. Bank. https://www.usbank.com/wealth-management/financial-perspectives/financial-planning/tax-brackets.html
3 Ways to Help Reduce Roth Conversion Taxes, Charles Schwab. https://www.schwab.com/learn/story/3-strategies-reducing-roth-ira-conversion-taxes
Why Should You Consider a Roth IRA Conversion?, Charles Schwab. https://www.schwab.com/learn/story/why-consider-roth-ira-conversion-and-how-to-do-it
Roth IRA Conversion, Fidelity Investments. https://www.fidelity.com/viewpoints/wealth-management/insights/roth-ira-conversion
Roth Conversions and Tax Diversification, Fidelity Investments. https://www.fidelity.com/learning-center/personal-finance/tax-diversification-roth-conversion
Answers to Roth Conversion Questions, Fidelity Investments. https://www.fidelity.com/learning-center/personal-finance/retirement/answers-to-roth-conversion-questions
Convert to a Roth IRA: Rules and Deadlines, Fidelity Investments. https://www.fidelity.com/retirement-ira/roth-conversion-checklists
IRA to Roth IRA Conversion Rules and FAQ, Wells Fargo. https://www.wellsfargo.com/investing/retirement/ira/roth-ira-conversion/
401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500, Internal Revenue Service. https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500
Instructions for Form 8606, Internal Revenue Service. https://www.irs.gov/instructions/i8606
About The Author
Shaun Melby, CFP® provides fee-only financial planning and investment management services in Nashville, TN through his company Melby Wealth Management. Shaun has over 15 years of experience as a financial advisor in Nashville. Shaun created Melby Money to educate the public about finances.
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