When you hold retirement accounts, one of the decisions you may face is whether to move money from a Traditional IRA into a Roth IRA. This process is called a Roth conversion or IRA to Roth conversion. In 2025, updated rules around contribution and income limits make Roth conversions an important concept to understand if you want to manage taxes across your retirement years.
This guide explains what a Roth conversion is, the potential reasons you might consider one, how it works, the latest Roth IRA conversion rules this year, and examples to help you see how it functions in practice.
What is a Roth conversion?
A Roth conversion allows you to move funds from a pre-tax retirement account, such as a Traditional IRA, 401(k), or other pre-tax retirement accounts, into a Roth IRA. When you convert, you pay income tax on the amount moved in the year of conversion.
By converting, you are essentially paying taxes now so that the converted funds can grow and potentially be withdrawn tax-free later.
Why consider a Roth IRA conversion?
1. No required minimum distributions (RMDs)
Unlike traditional IRAs, a Roth IRA is not subject to required minimum distributions during your lifetime. This may allow more flexibility in managing your retirement income and taxes.
2. Lowering future tax burden
When you convert funds to a Roth IRA, you pay taxes upfront at current rates on the converted amount. If tax rates rise in the future or your income increases, you may benefit by having more assets growing and distributable tax-free.
Example:
Suppose you convert $50,000 and your effective tax rate is 22% in the respective year. You’ll pay $11,000 in taxes that year. If those funds grow for 20 years, all withdrawals (assuming you meet Roth requirements) will be tax-free, even if rates are higher in the future.
3. Estate planning benefits
Roth IRAs allow heirs to receive distributions tax-free, which might make them a valuable estate planning tool. Note, though, that under SECURE Act rules, most non-spouse beneficiaries must distribute inherited Roth IRAs within 10 years, but distributions remain tax-free.
4. Account diversification:
Managing both pre-tax (like traditional IRAs) and after-tax (like Roth IRAs) accounts may give you more options when planning withdrawals in retirement, helping you manage your taxable income across different phases of retirement
Roth IRA conversion rules (2025)
If you’re considering an IRA Roth conversion, you’ll want to understand the Roth IRA conversion rules that apply in 2025.
1. Income limits do not apply
There are income limits for making direct Roth IRA contributions. However, Roth conversions have no income limit. That means even if your income is above the Roth contribution threshold, you can still perform a conversion.
2. No conversion cap
There’s no annual limit on how much you can convert. Unlike annual contribution caps ($7,000 for 2025, or $8,000 if you’re age 50+), you can convert larger amounts at once if you choose.
Conversions are not limited by these annual contribution caps.
3. Taxes are owed on converted amounts
You pay ordinary income tax on the amount converted. The converted sum is treated as taxable income for that year and could move you into a higher tax bracket.
4. Five-year rule
Converted funds are subject to the five-year rule. This means that for each conversion, you must wait five years before you can withdraw the converted funds penalty-free (even if you are over age 59½).
Example: Convert in November 2025, your five-year clock starts January 1, 2025—eligible for penalty-free withdrawals January 1, 2030.
There is no way to reverse (recharacterize) a Roth conversion once completed.
5. RMDs cannot be converted to a Roth IRA
If you are required to take RMD from your Traditional IRA, you must withdraw it for the year before initiating a Roth IRA conversion. The RMD amount itself is not eligible to be converted and cannot be included in the funds you move to a Roth IRA.
Example: How a Roth IRA conversion works
Let’s understand the basic process of an IRA to Roth conversion with an example below
- Suppose you have a Traditional IRA valued at $80,000. You decide to convert $30,000 of this amount into a Roth IRA. You may convert all or just a portion of your Traditional IRA balance.
- You choose to convert $30,000.
- That $30,000 is added to your taxable income for the year in which the conversion takes place. You’ll owe ordinary income tax on this amount, and it may affect your overall tax bracket when filing your return.
- After the conversion, the $30,000 is deposited in your Roth IRA. The converted funds will grow under Roth IRA rules, potentially tax-free, assuming you meet IRS requirements.
- Because of the Roth IRA five-year rule, each conversion amount must remain in your Roth IRA for at least five years before you can withdraw it penalty-free—unless you are already age 59½ or older, in which case you may be exempt from the early withdrawal penalty.
Conclusion
A Roth conversion is a tool that lets you shift money from a Traditional IRA or other eligible retirement account into a Roth IRA. In doing so, you pay taxes now in exchange for the possibility of tax-free withdrawals later. Rules like the absence of income limits on conversions, the five-year waiting period, and the need to take RMDs first are essential details to keep in mind when doing a Roth conversion.
Understanding the mechanics of IRA to Roth conversions may help you evaluate how this strategy could fit into your broader retirement planning. And if you’re looking to open or contribute to a Roth IRA more generally, you may sign up account with Public IRA, where you have access to retirement features alongside other investing options—all in one place.
