Glossary
Roth conversion
Definition
A Roth conversion moves money from a pre-tax IRA or plan into a Roth account, paying income tax on the converted amount now in exchange for tax-free qualified withdrawals later. Conversions must be completed by December 31 and can't be undone.
How roth conversion works
The classic window is the low-income years between retirement and RMDs. Converting reduces future RMDs and can leave heirs tax-free money.
Conversions can affect Medicare premiums two years later and the taxation of Social Security.
Why it matters to a firm
Multi-year conversion planning is high-value work that combines tax and investment advice.
Questions about roth conversion
Can a conversion be reversed?
No, recharacterization of conversions is no longer allowed.
When is the deadline?
December 31 of the tax year.
Should I pay the tax from the IRA?
Usually it's better to pay from outside funds.
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Related terms: Marginal tax rate · Required minimum distribution
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