The Step-by-Step Process for Converting Money to a Roth Account

How a Roth conversion actually works

A Roth conversion means moving money from a tax-deferred account—usually a traditional IRA or a 401(k)—into a Roth IRA. You pay income tax on the amount you convert in that tax year, and then the money grows tax-free in the Roth account forever. The conversion itself is not a withdrawal; it is a direct transfer between accounts that your bank or brokerage handles.

The mechanics are straightforward: you instruct your financial institution to move a specific dollar amount from your traditional IRA (or may be able to access 401(k)) to your Roth IRA. Your brokerage or bank processes the transfer, reports it to the IRS on Form 8606, and you report the taxable amount on your tax return. You do not receive a check; the money moves from one account to the other in your name.

Key Takeaways

• A Roth conversion requires you to pay income tax on the amount converted in the year you convert it, calculated at your ordinary income tax rate.
• You initiate a conversion by contacting your financial institution and requesting a direct transfer from your traditional IRA or 401(k) to your Roth IRA.
• The IRS requires your brokerage to report conversions on Form 8606, which you must file with your tax return to avoid being taxed twice on the same money.
• If you have both traditional and SEP IRAs, the pro-rata rule means you cannot convert only the pre-tax portion; the IRS treats all your IRAs as one account for conversion purposes.
• Conversions completed by December 31 are reported on that year's tax return; there is no grace period to undo a conversion after the tax year ends.

The three accounts you need before you start

You must have a Roth IRA open before you can convert money into it. If you do not have one, you can open a Roth IRA at any brokerage—Fidelity, Vanguard, Charles Schwab, or your bank—in about 15 minutes online. You will need your Social Security number, address, and employment information. There is no minimum balance to open the account; you can open it empty and fund it immediately with the conversion.

You also need the source account: a traditional IRA, SEP IRA, SIMPLE IRA, or an may be able to access 401(k) from a current or former employer. If you are still employed and your current employer's 401(k) plan allows in-service conversions, you can convert directly from that plan. If you have left the employer, you can convert from that 401(k) without restriction. Traditional IRAs have no such limitation—you can convert from a traditional IRA at any time, regardless of employment status.

If you have multiple IRAs—say, a traditional IRA and a SEP IRA—you will need to understand the pro-rata rule before converting. The IRS treats all your traditional, SEP, and SIMPLE IRAs as a single account for conversion purposes. This means you cannot cherry-pick only the pre-tax contributions to convert; the IRS calculates a blended tax rate across all your IRAs combined. If you have $100,000 in traditional IRAs and $20,000 in after-tax contributions, converting $50,000 means 20 percent of that conversion ($10,000) is treated as after-tax and 80 percent ($40,000) is taxable.

Initiating the conversion with your financial institution

Contact the brokerage or bank holding your traditional IRA or 401(k) and ask to speak with someone in the IRA department. Tell them you want to do a Roth conversion and provide the dollar amount. They will ask for the account number of your receiving Roth IRA and may ask whether you want a direct trustee-to-trustee transfer or whether you want to receive a check and deposit it yourself. Choose the direct transfer; it avoids the 60-day rollover window and the withholding complications that come with a check.

The institution will send you a form to sign—usually called a Roth Conversion Request or IRA Transfer Form. This form authorizes the transfer and confirms the amount. Review it carefully to make sure the dollar amount is correct and the receiving Roth IRA account number matches your account. Once you sign and return it, the transfer typically takes 5 to 10 business days. Some brokerages allow you to initiate the transfer online through your account dashboard; if yours does, you can skip the phone call and form entirely.

If you are converting from a 401(k), the process is similar but may take longer because 401(k) plans are administered by a plan administrator, not directly by your employer. Contact your plan administrator (usually through your company's benefits website or HR department) and request a direct rollover to a Roth IRA. They will provide the paperwork and coordinate the transfer. This can take two to three weeks because the plan administrator must verify your request and process it through their system.

What happens to your money during the conversion

Once the transfer is complete, the money sits in your Roth IRA in whatever form it was in before—cash, mutual funds, individual stocks, or other investments. You do not have to sell anything or change how the money is invested unless you want to. If your traditional IRA held a mutual fund, that same fund now sits in your Roth IRA. The conversion itself does not trigger any investment changes.

From the moment the money lands in your Roth IRA, it begins growing tax-free. Any gains, dividends, or interest earned after the conversion date will never be taxed, as long as you follow the Roth withdrawal rules (generally, you must be 59½ and the account must be open for at least five years to withdraw earnings tax-free). The money you converted is always yours to withdraw tax-free, regardless of age or account age, because you already paid tax on it.

Reporting the conversion on your tax return

Your brokerage will send you Form 8606 (Nondeductible IRAs) by January 31 of the following year. This form reports the conversion to the IRS and calculates how much of your conversion is taxable. If you converted $50,000 and all of it was pre-tax money, Form 8606 will show $50,000 as taxable income. You attach Form 8606 to your Form 1040 when you file your tax return.

You must file Form 8606 even if you do not owe tax on the conversion, because the IRS uses this form to track your Roth IRA basis (the after-tax money you have already paid tax on). If you fail to file Form 8606, the IRS may treat the entire conversion as taxable income, and you could face penalties and interest. If you made a mistake on Form 8606, you can file an amended return (Form 1040-X) to correct it, but you must do so within three years of the original return's due date.

The tax on the conversion is due when you file your return. If you expect a large conversion to push you into a higher tax bracket, you can make quarterly estimated tax payments to avoid penalties. Your tax software or accountant can calculate the exact amount you owe based on your total income for the year.

The pro-rata rule and why it matters

If you have both pre-tax and after-tax money across all your traditional and SEP IRAs, the pro-rata rule applies to your conversion. The IRS does not let you convert only the after-tax portion and leave the pre-tax portion behind. Instead, the IRS calculates what percentage of all your IRAs is after-tax, and that same percentage of your conversion is treated as after-tax (and therefore not taxable).

Here is a concrete example: suppose you have a traditional IRA with $80,000 in pre-tax contributions and a SEP IRA with $20,000 in after-tax contributions, for a total of $100,000. You want to convert $50,000 to a Roth IRA. The pro-rata rule says 20 percent of your IRAs is after-tax ($20,000 out of $100,000), so 20 percent of your conversion ($10,000) is treated as after-tax and not taxable. The remaining $40,000 is treated as pre-tax and is taxable income.

The pro-rata rule applies across all your IRAs in the United States, regardless of which institution holds them. If you have a traditional IRA at Fidelity and a SEP IRA at Vanguard, the IRS treats them as one combined account for this calculation. The only way to avoid the pro-rata rule is to have no pre-tax money in any IRA when you convert, or to roll pre-tax IRAs into your employer's 401(k) plan (if the plan allows it) before converting the after-tax IRA.

Conversions from 401(k) plans and special rules

If you are converting from a 401(k), the pro-rata rule does not apply—401(k)s are treated separately from IRAs. This means you can convert only the after-tax portion of your 401(k) to a Roth IRA and leave the pre-tax portion in the 401(k) or roll it to a traditional IRA. This is a significant advantage if you have substantial after-tax contributions in your 401(k).

However, your 401(k) plan must allow in-service conversions if you are still employed. Many plans do, but not all. Contact your plan administrator or benefits department to confirm. If you have left the employer, you can convert from that 401(k) without restriction—there is no in-service requirement once you are separated from service.

If your employer offers a Roth 401(k) option, you cannot convert directly to it from a traditional 401(k); you must convert to a Roth IRA first. Some employers allow you to then roll the Roth IRA back into the Roth 401(k), but this is not automatic and depends on the plan's rules.

Frequently Asked Questions

Can I undo a Roth conversion after I have done it?

No. Before 2018, the IRS allowed recharacterizations—you could undo a conversion and move the money back to a traditional IRA. That option ended on December 31, 2017. Once you convert, the conversion is permanent. You pay tax on it that year, and the money stays in the Roth IRA.

What if I convert and then the market drops—do I still owe tax on the original amount?

Yes. You owe tax based on the value of the money on the day you converted it, not on what it is worth later. If you converted $50,000 and the market dropped so it is now worth $40,000, you still owe tax on $50,000. This is actually an advantage if you convert before a market decline, because you pay tax on a lower amount and the recovery happens tax-free in the Roth.

Do I have to convert my entire IRA, or can I convert just part of it?

You can convert any amount you choose, from a few hundred dollars to the entire balance. You do not have to convert everything at once. Many people do multiple smaller conversions over several years to spread the tax bill across different tax years and avoid jumping into a higher bracket.

What if my employer's 401(k) plan does not allow in-service conversions?

You cannot convert from that 401(k) while you are still employed there. Your options are to wait until you leave the employer, or to roll the 401(k) to a traditional IRA and convert from the IRA instead. Rolling to an IRA is a separate transaction and takes a few weeks, but it gives you the conversion option immediately.

Do I have to convert by a certain date each year?

Conversions must be completed by December 31 of the tax year you want them reported in. There is no grace period into January. If you want to report a conversion on your 2024 tax return, the transfer must be completed by December 31, 2024.