Retirement and Social Security
Definition
Moving money from a traditional IRA or pre-tax plan into a Roth account and paying income tax on the amount now.
What it means
A Roth conversion transfers pre-tax retirement money into a Roth IRA. The converted amount, except any after-tax money already in the account, is added to your taxable income for the year, but the 10% early withdrawal tax does not apply to the conversion itself. After that, growth can be tax-free if later withdrawals are qualified. Each conversion has its own five-year period for the 10% tax on early withdrawals of converted amounts if you are under 59 1/2. There is no income limit for converting. Conversions cannot be undone; recharacterization of conversions ended after 2017. People often consider conversions in lower-income years, but a larger income can affect other things, such as Medicare premium surcharges, credits and the taxation of Social Security benefits.
Example
Converting $20,000 from a traditional IRA in a year when all of it falls in the 22% bracket adds about $4,400 of federal income tax.
Illustrative numbers only. Your situation will differ.