How does an IRA Conversion work?

An IRA conversion means moving money from a pre‑tax account—such as a traditional IRA or an old 401(k)—into a Roth IRA. The amount you move is treated as taxable ordinary income in the year of conversion. However, if you move it directly from one account to another, there is no 10% early‑withdrawal penalty at the time of conversion. After the conversion, the money grows inside the Roth IRA, and if you follow the age and 5‑year rules, future withdrawals can be tax‑free. In practice, you typically request a “Roth conversion” or “direct rollover to Roth” from your brokerage or custodian, choose the amount, and then plan ahead to pay the income tax—ideally with money outside the IRA.

Learn more about IRA conversion appraisals.