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Roth IRA Conversions: Rules, Benefits And How To

Updated: Apr. 28, 2022By: Amanda Reaume

A Roth IRA conversion is a way to convert a qualified retirement account such as a traditional IRA or a 401k into a Roth IRA. When doing so, the account holder will have to pay income tax on the amount converted since Roth IRAs are after-tax accounts.

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Roth Conversion: Definition & Benefits

A Roth IRA conversion is the conversion of an eligible pre-tax retirement account to an after-tax Roth IRA account. This can happen in a variety of ways and the money can come from a 401k or 403b, traditional IRA, or a SIMPLE IRA or SEP IRA.

  • Trustee-to-trustee transfer: It can be accomplished via a trustee-to-trustee transfer where the financial institution that holds the traditional IRA transfers it to the financial institution that will hold the new Roth IRA. It can also be transferred from one type of account to a Roth IRA at the same institution.
  • 401k or 403b rollover: It can be accomplished via the rollover of a 401k or 403b plan when an employee is leaving their job or if they are rolling over an account from a past employer. In this case, the plan administrator will send the money to the new Roth IRA account or give the account holder a check to deposit in the new account.
  • 60-day rollover: An account holder can also do what's known as a 60-day rollover where the money is paid out directly to the account holder and they have 60 days to deposit all or part of the total into a Roth IRA.

Takeaway: There is also something called a backdoor Roth conversion. This is a financial planning strategy for wealthier account holders who aren't eligible for a Roth IRA due to income limits. They, therefore, open a traditional IRA since it has no income limits on eligibility and then convert those accounts to a Roth IRA, giving them more tax planning flexibility in retirement.

Benefits of Converting to a Roth IRA

  • Tax-free withdrawals
  • The ability to withdraw without penalty, under some circumstances, before retirement
  • No required minimum distributions starting at age 72 like with pre-tax accounts
  • Tax-free distributions for spouses or children after death

Converting an IRA to a Roth IRA: Rules & Limits

Taxpayers can convert all or part of their savings held in a traditional IRA to a Roth IRA. There are no age limits or income requirements to be eligible.

After converting to a Roth IRA, the contributions are restricted for five years but then the account holder has more freedom to take them out and use them no matter how old they are, unlike with pre-tax savings accounts that restrict or penalize withdrawals of contributions until age 59 and a half. Earnings on the contributions cannot be withdrawn without penalty from either a Roth or Traditional IRA.

Takeaway: There are currently no limits on the amount transferred or the number of Roth conversions that account holders can do. While the IRA limits how many conversions a person can make from one traditional IRA to another to one in any 12-month period, they do not limit how many times a year an account holder can make conversions from a Traditional IRA to a Roth IRA.

Reasons to Convert to a Roth IRA

  • If the account holder expects to be in the same or higher tax bracket when they will need to withdraw funds in the future.
  • They have the funds available to pay the taxes.
  • They are looking to have greater tax-planning flexibility.
  • They want more flexibility around estate planning.

Tip: The rules around Roth IRA conversions could change in the future. Some have discussed changing the rules to prevent backdoor Roth conversions, as reported in CNN. No changes have yet been implemented, though.

Deadline to Convert Traditional IRA to Roth

An account holder who wants their conversion to be counted towards their current year's taxes will need to convert by December 31 of that year. Otherwise, it will count towards the following year's taxes. Note that this date is different from the deadline to contribute to an IRA account, which is April 15 of the following year.

Taxes for Rollover IRA to Roth IRA

There are tax implications when converting an IRA to a Roth IRA. When an account holder completes the conversion, they will owe taxes on the money they held in the traditional IRA as if they had withdrawn it. Those funds will be taxed as if they were income received the year that the conversion was completed.

How to Convert Traditional IRA to a Roth IRA

When it comes to converting a traditional IRA or other savings account to a Roth IRA, conversion is easy. The account holder simply has to choose whether they want to do a trustee-to-trustee transfer, a direct rollover, or a 60-day rollover.

After that, they need to set up a Roth IRA and contact the financial institution that currently holds their savings account to initiate the process. This also works when creating a backdoor Roth.

Should You Convert to a Roth?

A Roth conversion can be a good idea for those who are looking for greater tax flexibility in retirement and believe that their tax bracket will remain the same or increase in the future. It is also potentially a good idea if someone doesn't need the funds for five years, and does not want to be forced to take them out with a required minimum distribution in retirement.

A Roth IRA conversion might not be a good idea if someone is pushed into a higher tax bracket after converting, expects to be in a lower tax bracket in the future, lives or plans to relocate to a state with no income tax, does not have the funds easily available to pay the taxes, or is not sure what their future tax situation will be.

Tip: Always seek the advise of a professional financial planner when making a big decision, like whether converting your funds to a Roth IRA is the right decision for you.

Bottom Line

An IRA conversion can be helpful for people who are looking to have more flexibility over how they withdraw their money or plan their taxes in the future. Given the opportunity to create a backdoor IRA through a conversion, there are a number of compelling reasons why a Roth conversion would make sense. Account-holders interested in Roth conversions should contact their financial advisors to see if it would make sense for them.


  • The good news is that Roth conversions don’t count as yearly Roth contributions. You can complete a Roth IRA conversion and make a contribution to your Roth IRA for the full amount you’re eligible for in the same year.

  • Yes, you can convert a Roth IRA after retirement. There are no age limits or cutoffs for Roth IRA conversions. Many account holders convert to a Roth IRA to stop having to take their Required Minimum Distributions (RMDs) from other accounts.

  • The mega backdoor Roth IRA conversion allows an account holder to make large contributions of up to $40,500 in a Roth IRA in 2022. For this to work, you need a 401(k) plan that will accept after-tax contributions and your employer has to offer distributions to a Roth IRA.

This article was written by

Amanda Reaume profile picture
Amanda Reaume has been writing about retirement, investing, and financial planning for over a decade. She has been published in USAToday, Time.com, Yahoo!Finance, Business Insider, Forbes, and Fox Business. She is a former credit expert at Credit.com and wrote a book about financial planning and investing aimed at millennials.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (3)

Leonard Howell profile picture
I cannot add to my existing ROTH because of income limits, but would like to transfer some losers from my IRA into the ROTH, similar to No Identify's comment. Can I do the conversion despite not being able to contribute to the ROTH via a regular annual contribution?
No Identity profile picture
@Leonard Howell I have been doing this the last three years this year being a down year works well. The only downside is having to pay estimated taxes. in addition I'm in the same situation as yourself can't add because of income restrictions. Interesting year. I did like kind. INTC
PARA VZ around 12 grand in total.
No Identity profile picture
My strategy has been to convert the current losers in a like kind distribution.
Taking advantage of the losses and being sure not to increase income out of my tax bracket.
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