Skip to main content
Roth Math Pro

Methodology · Roth Conversion

Roth conversion mechanics methodology

Reviewed by · Last reviewed .

How we compute the federal and state tax owed on a Roth conversion on the Roth Conversion Tax Calculator: the bracket stack for 2026 under the One Big Beautiful Budget Act (OBBBA), state conformity rules under IRC §408A, net investment income tax exposure, and how prior non-deductible contributions reduce the taxable amount per IRC §408(d)(2).

Core conversion formula

A Roth conversion is a taxable distribution from a traditional IRA that is immediately re-contributed to a Roth IRA. The IRS treats the converted amount as ordinary income in the year of conversion per IRC §408A(d)(3). The resulting tax depends on where the conversion amount stacks on top of your other ordinary income.

Roth Conversion Tax Owed =
  (Conversion Amount × Marginal Federal Rate)
  + (Conversion Amount × State Marginal Rate, where state conforms to §408A)
  + (NIIT 3.8% × Excess MAGI above $200K single / $250K MFJ, if applicable)
  − (Any allocable basis from prior non-deductible contributions per IRC §408(d)(2))

Where Marginal Federal Rate is determined by 2026 OBBBA brackets:
  10%  on taxable income to $11,925 single / $23,850 MFJ
  12%  to $48,475 / $96,950
  22%  to $103,350 / $206,700
  24%  to $197,300 / $394,600
  32%  to $250,525 / $501,050
  35%  to $626,350 / $751,600
  37%  above $626,350 / $751,600

Marginal Cost of Conversion =
  (Incremental Tax from Stacking Conversion on Top of Existing Income)
  ÷ Conversion Amount
  = Effective Marginal Rate on the Conversion

The conversion does not receive capital-gains treatment. It is taxed as ordinary income in the year converted, not the year contributed. No 10% early-withdrawal penalty applies when the converted amount is properly rolled into the Roth IRA within 60 days, per IRC §408A(d)(3)(B).

Basis recovery — IRC §408(d)(2) and Form 8606

If you have ever made non-deductible contributions to a traditional IRA, you have basis in that account. Basis is recovered pro-rata across all traditional IRA balances — not account by account. The non-taxable fraction of any conversion equals:

Non-Taxable Fraction =
  Total Basis (sum of non-deductible contributions not yet recovered)
  ÷ Total Value of ALL Traditional IRAs as of December 31 of conversion year

Taxable Portion of Conversion =
  Conversion Amount × (1 − Non-Taxable Fraction)

Example:
  Total basis: $20,000
  Total IRA value at Dec 31: $200,000
  Non-taxable fraction: 10%
  On a $50,000 conversion, $5,000 is tax-free; $45,000 is taxable.

This is tracked on IRS Form 8606 (Nondeductible IRAs), which must be filed every year you have basis and every year you convert or take a distribution. Failure to file Form 8606 does not eliminate the basis, but it creates a documentation problem that can be expensive to reconstruct.

IRMAA Medicare lookback interaction

A Roth conversion increases your Modified Adjusted Gross Income (MAGI) in the year of conversion. Medicare Part B and Part D premiums are based on MAGI from two years prior — so a 2026 conversion affects 2028 premiums. The 2026 IRMAA Tier 1 threshold is $109,000 single / $218,000 MFJ. A conversion that pushes MAGI above a tier boundary triggers a surcharge that may cost more annually than anticipated. See the IRMAA Planning methodology page for the full tier schedule.

Edge cases

  • Social Security benefit taxation (IRC §86). The conversion amount is included in the provisional income formula that determines how much of your Social Security benefit is taxable. For retirees already near the 85% inclusion threshold, a conversion can create an effective marginal rate well above the nominal bracket rate. Our calculator surfaces the provisional income impact as a separate line item.
  • State conformity. Most states that have an income tax conform to IRC §408A and tax Roth conversions as ordinary income. Nine states have no income tax; others (Pennsylvania, for example) do not tax retirement income distributions at all. Always verify your state's specific treatment before executing.
  • Net investment income tax (NIIT). NIIT (IRC §1411) applies at 3.8% on net investment income when MAGI exceeds $200,000 single / $250,000 MFJ. Roth conversion income is NOT net investment income itself, but the conversion can push other investment income (dividends, capital gains) above the NIIT threshold.
  • In-plan Roth conversions. Per IRS Notice 2010-84, employer plans (401(k), 403(b)) may allow in-plan Roth conversions of after-tax or pre-tax amounts. The tax math is identical to a traditional IRA conversion, but the basis tracking uses a separate Form 8606 worksheet line specific to employer plans.
  • Recharacterization is gone. Under the Tax Cuts and Jobs Act of 2017, recharacterization of Roth conversions is permanently prohibited. A conversion is irrevocable in the tax year executed.

Named-expert guidance

Per Ed Slott (IRA Help), Slott Report(irahelp.com): “Converted dollars are always available tax-free, regardless of age, because as you said, you already paid the taxes due on those dollars when you did the conversion.” Slott's framing clarifies why the conversion creates a permanent tax-free pool — the tax cost is a one-time event, not an ongoing liability.

Per Michael Kitces, Nerd's Eye View (kitces.com): the optimal Roth conversion strategy requires weighing conversion-year taxes against IRMAA Medicare surcharges triggered two years later. Kitces documents cases where a conversion that looks bracket-friendly in isolation generates more in IRMAA surcharges than it saves in future ordinary income taxes — particularly for taxpayers between $109,000 and $218,000 MAGI (2026 Tier 1 thresholds).

Per Jeffrey Levine, Kitces.com (Dec 28, 2022): SECURE Act 2.0 changes to RMD ages alter the Roth conversion calculus meaningfully for pre-retirees. Pushing the RMD start age to 73 (and 75 for those born after 1960) extends the window where tax-deferred balances grow without mandatory distributions — but also extends the window where pre-RMD conversions can reduce future forced ordinary income.

Sources

This is methodology documentation, not tax advice. Roth conversion decisions interact with your overall tax bracket, state-conformity to federal IRC §408A, IRMAA Medicare costs, RMD timing, and your retirement income plan. Consult a licensed CPA, EA, or financial planner before executing any IRA conversion.

Back to methodology overview.