Convert a traditional IRA to a Roth, and the IRS calls it income. No raise. No bonus. No new dollars anywhere. Just money that’s never been taxed, moving into an account where it never will be, taxed the moment it crosses over. For high earners, that single move can ripple into your bracket, your Medicare premium, and how much of your investment income gets taxed this year. Here’s what happens to your income picture when you convert, and what to weigh before you do it.
The short answer: yes, and what that means for your tax bill this year
Yes. The taxable part of a Roth conversion counts as ordinary income in the year you convert. The IRS treats it like wages. It lands on your return as gross income. It adds to your adjusted gross income. It’s taxed at your marginal rate.
You can convert money from a traditional IRA, a SEP IRA, a SIMPLE IRA (check your plan’s rules), or a pre-tax employer plan like a 401(k). The rule stays the same everywhere: untaxed money becomes taxable the moment it moves into a Roth. Money you already paid tax on doesn’t get taxed twice.
What gets taxed, and what doesn’t
Not every dollar you convert gets taxed the same way. What you owe depends on the tax character of the money.
Pre-tax contributions
Deducted your traditional IRA contributions? Or did pre-tax dollars come out of your paycheck into an employer plan? That money has never touched a tax return. Convert it, and it’s taxable, in full.
Investment earnings
Same goes for growth. Dividends, interest, gains inside the account: none of that has been taxed yet either. Convert it, and it’s taxed the same way as the pre-tax money.
After-tax contributions
Made nondeductible contributions to a traditional IRA? You already paid tax on that money. The basis itself doesn’t get taxed again. But here’s the catch: if that account also holds pre-tax money, you can’t cherry-pick which dollars convert. The IRS pools your basis across every traditional, SEP, and SIMPLE IRA you own and applies it proportionally. This is the pro-rata rule (see the IRS Form 8606 instructions). Say 80% of your combined IRA balances are pre-tax. Roughly 80% of any conversion is taxable, no matter which account the money came from.
Weighing a backdoor Roth contribution instead of a full conversion? The pro-rata rule changes that math too. Worth a separate conversation before you fund it.
How a Roth conversion changes your income picture for the year
The U.S. taxes income in brackets. Move into a higher one, and only the income inside that bracket gets the higher rate. The rest stays put. But a conversion still raises your adjusted gross income, and that number touches more of your return than your bracket alone.
Four terms matter here: gross income, adjusted gross income, modified adjusted gross income, and taxable income. Gross income is everything before adjustments. AGI subtracts specific deductions. MAGI adds certain items back for specific calculations. Taxable income is what’s left after your deduction. A conversion raises all four. MAGI is the one to watch. It’s the number behind the net investment income tax, Medicare’s IRMAA surcharge, and a handful of phaseouts.
Here’s the part a Roth calculator won’t show you. The conversion itself isn’t investment income, so the net investment income tax doesn’t apply to it directly. But it raises your MAGI, and that can push your other income, capital gains, dividends, over the threshold where that tax applies. IRMAA works on a two-year lookback: convert this year, and your Medicare premium can rise two years from now. Stack the conversion on top of RSU income, a bonus year, or a property sale (run the numbers with Nino’s RSU tax calculator if equity is part of the mix), and a conversion that looked reasonable by itself can push your MAGI somewhere you didn’t plan for. None of this means skip the conversion. It means size it against everything else happening in your tax year, not by itself.
Can you reverse a Roth conversion?
No. Not since 2018. Before the Tax Cuts and Jobs Act, you could recharacterize a conversion back to a traditional IRA if the tax bill stung more than expected. That door closed. The IRS instructions for Form 8606 spell it out: conversions made in 2018 or later can’t be recharacterized.
That makes converting a one-way trip. Once the money moves, the tax bill is locked in. Model it before you convert. There’s no undo button after.
The timing question: when does converting make sense?
Paying tax now beats paying tax later when one of two things is true: the money will grow for years, or your tax rate will be higher down the road. A few situations come up again and again.
A temporarily low-income year
Early retirement before RMDs start. A sabbatical. A founder drawing a small salary before a liquidity event. Each one opens a window where your marginal rate drops. Convert inside that window, and you pay tax at a lower rate than you would most years.
Before required minimum distributions begin
Shrink your pre-tax balance before RMD age, and you shrink your future required distributions too. That buys you more control over your taxable income later in retirement.
Before a major increase in income
A startup exit. A secondary sale. A large stock-option exercise. Each one spikes your income for a year. Convert before the spike, not during it, and the tax bill shrinks.
For estate-planning reasons
Roth assets carry different tax treatment for heirs than pre-tax assets. Whether that matters for you depends on your beneficiaries, your account size, and your estate plan. Talk to an advisor before assuming it applies to you.
When you can pay the tax from outside funds
Cover the tax bill with cash from a savings or brokerage account instead of withholding it from the conversion, and more of your retirement balance stays invested and growing tax-free.
How Nino helps coordinate Roth conversion planning
A Roth conversion never sits by itself. It touches your bracket, your Medicare premium, your investment income, and whatever else is happening in your financial year: equity vesting, a property sale, a bonus. Sizing it right means someone has to see all of it at once.
Nino puts financial planning, tax expertise, and technology under one flat annual fee, with a CFP and CPA working off the same picture of your finances. Compare that to the usual setup: an advisor manages your investments, a CPA sees your return after the year ends, and nobody catches the conflict until it’s already happened. It’s also different from a percentage-of-assets model, where the fee climbs with your portfolio no matter how much planning you need. Not every AUM advisor plans badly, and flat-fee advice isn’t always cheaper, but the incentives differ.
Book a demo before your next conversion.
