What Are Roth IRA Conversion Limits?

Unlike contributions, Roth IRA conversions have few limits

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Converting retirement funds involves rolling over your tax-deferred or pretax savings contributions from a traditional individual retirement account (IRA) into a Roth IRA. Doing so can be advantageous because Roth accounts offer some unique features as a retirement savings vehicle. For one, you’re not forced to take required minimum distributions (RMDs) from Roth IRAs. Also, your money can grow tax-free, subject to some rules that aren’t particularly prohibitive.

None of these rules involves a limit as to how much money you can convert to a Roth account or to your income, but they can affect the tax-free treatment of your withdrawals in retirement.

Key Takeaways

  • Contributions made directly to a Roth IRA have amount limits, but conversions are exempt from these rules.
  • Earnings on funds converted to a Roth IRA are tax-free if you wait five years to withdraw the money.
  • You can’t undo, or “recharacterize,” a Roth conversion.
  • Conversions from a traditional IRA to a Roth will be subject to income tax in the year you roll over the money, if you claimed a tax deduction for your original contribution to the traditional IRA.

Roth IRA Conversions Are Unlimited

Roth IRAs have contribution limits that hinge on your income and filing status, but these limits don’t apply to conversions. They only affect direct contributions.

Roth conversions were limited to taxpayers with adjusted gross incomes (AGIs) of less than $100,000 before 2010, but the Tax Increase Prevention and Reconciliation Act eliminated this rule.

You can’t contribute directly to a Roth IRA if your modified AGI is $214,000 or more as of 2022 and you’re married and filing a joint return with your spouse. The limit is $144,000 if you’re a single taxpayer, if you qualify as a head-of-household filer, or if you’re married but filing a separate return and you didn’t live with your spouse at any time during the tax year. The amount you can contribute is phased out at incomes of $204,000 or reduced at incomes between $129,000 and $143,999.

These income limits do not apply to conversions made after the year 2010; they only apply to direct contributions.

Another tax rule went into effect in 2015 that limits you to one retirement account rollover per year, but this doesn’t apply to conversions, either.  

Deadline for Converting to a Roth IRA

You can convert savings from a traditional IRA to your Roth account in one of three ways. 

You can take the money as a distribution and place it in your Roth IRA within 60 days. Or you can have the trustee of the first account transfer the funds to the Roth account trustee on your behalf. The same trustee can handle everything for you if your traditional and Roth IRAs are both held by the same institution.

The 60-day limit applies only when you take the money into your own control before rolling it over into a Roth IRA.

Five-Year Rule for Roth IRA Withdrawals

Roth IRAs are subject to a five-year rule. You can’t take withdrawals from a Roth account before five years have passed from the date when the account was opened or before you turn age 59 ½, whichever occurs later. You’ll be charged a 10% penalty tax if you do.

The age rule applies to traditional IRAs as well, but Roth IRA conversions typically avoid penalty tax because they’re not considered to be withdrawals when they leave the traditional IRA account. You’re not taking possession of the money for more than 60 days. You’ll be charged that 10% penalty, however, if you miss the 60-day deadline for some reason.

Roth Conversions Can’t Be Recharacterized

You “recharacterize” your contributions to an IRA when you treat direct contributions to that account as having been made to the other, either a traditional or a Roth. You can transfer the money from one account to the other prior to the due date for filing your tax return and treat that contribution as having been made during the tax year. The move effectively erases and undoes the contribution made to the first IRA.

But this rule doesn’t apply to Roth conversions.

The Tax Cuts and Jobs Act (TCJA) eliminated conversion from Roth IRAs back to traditional IRAs from the tax code in 2018. You can’t "undo" your conversion and put the money back into your traditional IRA.

Taxes on Roth Conversions

None of this is to say that the IRS won’t be seeking a few tax dollars if you convert to a Roth IRA.

Contributions to traditional IRAs typically are made with pretax dollars. You can claim a tax deduction for them in the year in which you make the contribution, subject to some income limitations. The money is taxed later when you withdraw it in retirement.

But Roth distributions are tax-free, subject to the five-year rule and the age-59 ½ rule, so the amount of your conversion to a Roth is taxed as income in the year you transfer the funds.

This is a one-time tax event. Your converted funds will be treated the same as your other Roth contributions after the conversion, in terms of taxation.

Frequently Asked Questions (FAQs)

When do you pay tax on a Roth conversion?

The converted funds are treated as taxable income in the year the money is withdrawn from a traditional IRA if you claimed a tax deduction for the contributions at the time you made them.

When is the best time to start a Roth IRA conversion?

One of the best perks of a Roth IRA is that the money that's contributed or converted into the account grows tax-free, unlike with a traditional IRA, where both the original contributions and their earnings are fully taxable upon withdrawal. You’ll realize more tax-free savings if you convert early, years before retirement, so that money has longer to grow.

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