How a Roth Conversion Works (and When the Backdoor Comes In)

Have you ever looked at your retirement accounts and wondered how much of that balance is actually yours? For most people with a traditional 401(k) or IRA, the honest answer is: not all of it. The IRS still has a claim on every dollar you have not paid taxes on yet.

That is the problem a Roth conversion is built to solve. A Roth conversion means moving money from a pre-tax retirement account into a Roth IRA, paying the income tax now, and letting the money grow tax-free from that point forward. It trades a known tax bill today for no tax bill later.

At ABRI, we work through this decision with high earners and pre-retirees regularly. What we have found is that the conversion itself is rarely the hard part. The hard part is deciding how much to convert, in which years, without accidentally triggering costs nobody warned you about.

This post walks through how conversions work, why the current tax rules make them worth a look, how the backdoor Roth version works for high earners, and the three traps that catch people most often.

Key takeaways

• A Roth conversion moves pre-tax retirement money into a Roth IRA, where qualified withdrawals and all future growth are tax-free and no required minimum distributions apply during your lifetime.
• For 2026, direct Roth IRA contributions phase out between $153,000 and $168,000 of income for single filers and between $242,000 and $252,000 for married couples filing jointly, which is why many high earners use the backdoor Roth strategy instead.
• A Roth conversion must be completed by December 31 of the tax year, unlike IRA contributions, which can be made until the April filing deadline.
• Conversions have been irreversible since 2018, and the added income can raise Medicare premiums two years later, so sizing the conversion matters as much as doing it.

Why convert at all?

A Roth IRA has two advantages a traditional account cannot match. Qualified withdrawals are completely tax-free, both your original money and every dollar of growth. Roth IRAs also have no required minimum distributions (mandatory annual withdrawals the IRS imposes on traditional accounts) during your lifetime, so the money can keep compounding as long as you want.

The catch is that you pay the tax up front. Converting $50,000 while you sit in the 24% bracket means roughly $12,000 of federal tax due for that year, paid ideally from cash outside the account. In exchange, that $50,000 and everything it earns from here is never taxed again.

So when does that trade make sense? Generally, when the rate you would pay now is lower than the rate you expect later. That is why conversions are popular in lower-income years: a gap between retirement and Social Security, a sabbatical, or a down year in a business.

Current law also plays a role. The 2025 tax legislation made today’s income tax brackets permanent, which removed the old deadline pressure to convert before rates snapped higher. The planning question has shifted from beating a rate increase to filling your current bracket efficiently, year after year.

How much should a conversion be?

The most common approach is bracket filling: converting just enough to reach the top of your current tax bracket without spilling into the next one. Every dollar inside the bracket is taxed at a rate you have already accepted. The first dollar over it costs more.

Here is a simplified example. Say a married couple has $150,000 of taxable income in 2026, and the 22% bracket tops out at $211,400 for joint filers. Converting about $61,400 would fill the remaining room in that bracket. Converting $80,000 instead would push roughly $18,600 of it into the 24% bracket, an avoidable extra cost of about $372 in this simplified math.

One caution before you run your own numbers. Bracket thresholds shift every year with inflation, and your taxable income is a moving target until late in the year. This is why conversion planning tends to happen in the fall, once the year’s income picture is mostly clear.

Bracket filling covers the how much. Now let’s talk about the version of this strategy built for people the IRS has locked out of the front door.

What is a backdoor Roth IRA?

If your income is high enough, you cannot contribute to a Roth IRA directly. For 2026, the ability to contribute phases out between $153,000 and $168,000 of modified adjusted gross income for single filers and between $242,000 and $252,000 for married couples filing jointly, according to the IRS 2026 contribution limits.

The backdoor Roth IRA is a legal two-step workaround. There is no income limit on making a nondeductible contribution to a traditional IRA, and there is no income limit on converting a traditional IRA to a Roth. Put those together and the path opens: contribute after-tax dollars to a traditional IRA, then convert that balance to a Roth shortly after the funds settle.

For 2026, the IRA contribution limit is $7,500, or $8,600 if you are 50 or older. Because the contribution was made with after-tax money, converting it typically triggers little or no additional tax. The one piece of paperwork that makes it all work is IRS Form 8606, filed with your tax return to document that the contribution was already taxed. Skip that form and you risk paying tax on the same dollars twice.

What are the traps to watch for?

Three issues cause most of the trouble we see with conversions, and all three are avoidable with planning.

The pro-rata rule. The IRS treats all of your traditional, SEP, and SIMPLE IRAs as one combined bucket. If you hold $92,500 of pre-tax money in an old rollover IRA and add a $7,500 after-tax contribution for a backdoor Roth, the IRS sees a $100,000 pool that is 92.5% pre-tax. Convert $7,500 and about $6,938 of it is taxable, which defeats the point. Many people clear the path first by rolling pre-tax IRA balances into a workplace 401(k), where the pro-rata math does not reach.

The calendar. An IRA contribution for a given year can be made up until the April filing deadline. A conversion cannot. It has to be complete, funds settled in the Roth, by December 31. In practice the real cutoff is earlier, often the first half of December, because custodians need processing time. If you are subject to required minimum distributions (age 73 under current law), that year’s full distribution has to come out before any conversion, and the distribution itself cannot be converted.

The ripple effects. A conversion is added to your income, and income drives more than your tax bracket. It can raise Medicare premiums through IRMAA (an income-based surcharge on Medicare Part B and D), which looks back two years, so a 2026 conversion shows up in 2028 premiums. Higher income can also expose more of your investment earnings to the 3.8% net investment income tax. The converted amount itself is not investment income, but it can push other income over the threshold. One conversion sized carelessly can cost more in surcharges than it saves in future taxes.

Also remember that conversions are permanent. Since 2018, the IRS no longer allows a conversion to be undone, so the analysis has to happen before the move, not after.

Two five-year rules worth knowing

Roth conversions come with a pair of waiting periods that share a name and confuse almost everyone.

The first applies per conversion. If you are under 59½, each converted amount has its own five-year clock before you can withdraw that principal without a 10% penalty. The second applies once per lifetime: for earnings to come out tax-free, at least five years must have passed since your first Roth contribution or conversion, and you generally need to be 59½ or older.

The practical takeaway is simple. Money you convert should be money you can leave alone for at least five years. If you may need it sooner, it probably belongs somewhere else.

The bigger picture

It is easy to get lost in brackets, thresholds, and forms. So step back for a moment. The real question a Roth conversion answers is not a tax question at all. It is about what kind of retirement you want: one where every withdrawal comes with a tax calculation, or one where a meaningful part of your savings is simply yours, free and clear, for you and eventually for your kids.

You opened this post wondering how much of your retirement balance is actually yours. The encouraging answer is that the number is not fixed. With patient, year-by-year planning, you can move it in your favor. A good first step this week: pull up your accounts, note how much sits in pre-tax versus Roth dollars, and see the starting line for yourself.

Frequently asked questions

How does a Roth conversion work?

A Roth conversion moves money from a pre-tax retirement account, such as a traditional IRA, into a Roth IRA. The converted amount is added to your taxable income for that year and taxed at ordinary income rates. After the conversion, qualified withdrawals of that money and its growth are generally tax-free, and the funds are no longer subject to required minimum distributions during your lifetime.

What is the deadline for a Roth conversion?

A Roth conversion must be completed by December 31 of the tax year it applies to. This is different from IRA contributions, which can be made until the April tax filing deadline of the following year. Because custodians need time to process and settle the transfer, many firms suggest starting a conversion by early December rather than waiting until the final week of the year.

Do Roth conversions have income limits?

No. Anyone can convert a traditional IRA to a Roth IRA regardless of income. Income limits apply only to direct Roth IRA contributions, which for 2026 phase out starting at $153,000 of modified adjusted gross income for single filers and $242,000 for married couples filing jointly. This difference is what makes the backdoor Roth strategy possible for high earners.

What is the pro-rata rule for backdoor Roth IRAs?

The pro-rata rule requires the IRS to treat all of your traditional, SEP, and SIMPLE IRAs as one combined account when you convert. If most of that combined balance is pre-tax money, most of any conversion is taxable, even if you only meant to convert an after-tax contribution. Many savers avoid this by moving pre-tax IRA balances into a workplace 401(k) before starting a backdoor Roth.

Can a Roth conversion be undone?

No. Since 2018, federal law no longer allows Roth conversions to be reversed or recharacterized. Once the money moves into the Roth IRA, the tax bill for that year is locked in. This is why conversion amounts are typically planned carefully against tax brackets, Medicare premium thresholds, and expected income before the transfer is made.

Disclaimer: This information is provided as general information and is not intended to be specific financial guidance. Before you make any decisions regarding your personal financial situation, you should consult a financial or tax professional to discuss your individual circumstances and objectives. The source(s) used to prepare this material is/are believed to be true, accurate and reliable, but is/are not guaranteed.