How to Do a Roth Conversion

The five steps

1. Step 1: Value every traditional account. Total all pre-tax IRA, SEP, and SIMPLE balances — the IRS aggregates them for the pro-rata rule. A conversion's taxable slice depends on the whole pile, not the account you touch.
2. Step 2: Model the bracket before moving a dollar. Project this year's income and convert only into the current bracket's headroom. The conversion stacks on top of ordinary income — overshoot and you buy a higher rate plus Medicare IRMAA.
3. Step 3: Clear the pro-rata trap. If deductible and nondeductible dollars mix, every converted dollar is proportionally taxable. Roll pre-tax balances into a current 401(k) first and the conversion converts cleanly.
4. Step 4: Execute a direct trustee transfer. Move custodian to custodian into the Roth — no check in your hands, no 60-day clock, no 20% withholding surprise. December conversions count for that tax year if completed by the 31st.
5. Step 5: Pay the tax from outside funds. Never withhold from the conversion itself: withheld dollars under 59½ draw the 10% early-withdrawal penalty on top of the tax. The conversion amount stays whole; the tax comes from cash.

What can go wrong

The classic failure is converting blind into a higher bracket — or into Medicare IRMAA two years later, since the conversion inflates the MAGI Medicare reads. The second failure is the pro-rata surprise: a forgotten $200,000 rollover IRA makes a $6,000 backdoor conversion 97% taxable. And withholding from the conversion to pay its own tax shrinks the Roth while inviting the 10% early-withdrawal penalty under 59½. Every failure mode here is a modeling failure, not an execution failure — the transfer itself takes minutes.

Primary IRS guidance

• IRS: Roth IRAs
• IRS: Traditional IRAs
• IRS: About Form 8606 (nondeductible IRAs)