How to Convert an IRA to a Roth IRA in 2026

One of the questions I hear most often from clients across California goes something like this:

"Should I convert my IRA to a Roth this year?"

And my honest answer is usually the same one I give about most financial tools: it depends on what you are trying to accomplish.

A Roth conversion is not a strategy by itself. It is a tool. But once you have decided a conversion makes sense for your situation, the how is fairly straightforward. This is the step-by-step version of that conversation.

If you are still weighing whether a conversion makes sense at all, start with Roth Conversion: Does It Make Sense for Me? before working through the mechanics below.

A Roth conversion moves pre-tax money out of a Traditional IRA (or a SEP or SIMPLE IRA) and into a Roth IRA. You pay ordinary income tax on the amount you convert this year, and in exchange that money grows tax-free and comes out tax-free later.

A few things worth knowing before we go further:

No income limit: Unlike direct Roth contributions, there is no income ceiling on conversions. A high earner in Newport Beach can convert just as freely as someone with modest income.

No dollar cap: You can convert $10,000 or $1 million in a single year. The only real constraint is the tax bill.

California follows along: The converted amount is taxable at the federal level and on your California return, where the marginal rate can reach 13.3%. That state layer is exactly why timing matters here more than most places.

1. Review Your Traditional IRA and Tax Basis

Start by understanding what is actually in the account. Most Traditional IRA money is pre-tax, but some people have after-tax contributions too. That after-tax portion is your basis, and it converts tax-free. You cannot cherry-pick and convert only the after-tax dollars, though. The pro-rata rule treats all of your Traditional, SEP, and SIMPLE IRAs as one combined pool as of December 31.

2. Open a Roth IRA

If you do not already have one, open a Roth IRA at the custodian holding your Traditional IRA. Keeping both accounts under one roof makes the transfer cleaner and reduces the chance of a paperwork mistake.

3. Decide How Much of Your IRA to Convert

This is the step where the real planning happens, and where I spend the most time with clients. It is also where a conversion goes from a simple transaction to a real question of whether it makes sense for you. The goal is rarely to convert everything at once. More often, we look at:

• Your current federal bracket and how much room is left before you spill into the next one
• Your California marginal rate for the year
• Whether a large conversion could raise your Medicare premiums (IRMAA) or affect how your Social Security is taxed in California
• How future Required Minimum Distributions at age 73 might push you into higher brackets later, and what that means for how much you actually need to retire

Sometimes the smarter move is a series of smaller conversions over several years rather than one big one.

4. Choose a Direct or Indirect Conversion

You have two ways to move the money:

Direct conversion: The custodian transfers the funds straight from your Traditional IRA to your Roth. This is the clean option and the one I almost always recommend.

Indirect conversion: The money is paid to you first, and you have 60 days to deposit it into the Roth. Miss that window and it becomes a taxable distribution, sometimes with a penalty.

For most people, direct is simpler and safer.

5. Transfer the Money Into Your Roth IRA

Submit the conversion request with your custodian. The transaction generally settles within a few business days. Remember the deadline: to count for the 2026 tax year, the conversion must be completed by December 31, 2026.

6. Pay the Taxes on the Converted Amount

The converted amount stacks on top of your other income for the year. Here is my one firm rule: pay the tax from money outside the IRA, such as a savings or brokerage account. Using IRA dollars to cover the bill shrinks the very account you are trying to grow, and if you are under 59½, it can trigger a penalty.

7. Invest the Money in Your Roth IRA

Cash that lands in a Roth does not invest itself. Once the funds arrive, put them to work in a way that fits your overall plan. Since Roth growth is tax-free, this is often where longer-term, higher-growth holdings make the most sense.

8. Report the Conversion on Your Tax Return

You will report the conversion on IRS Form 8606, which documents your basis and calculates the taxable portion under the pro-rata rule. It also flows onto your Form 1040 and your California return. One more thing to keep in mind: conversions have been permanent since 2018. There is no undo button, so it pays to be deliberate.

Converting an IRA to a Roth is not hard to do. The harder part is knowing whether you should, how much, and when. Those answers depend on your income, your goals, and how this one decision ripples through the rest of your financial life -- from your taxes to your retirement income to what you eventually leave behind.

That is exactly what a Financial Pathways Analysis™ is built to reveal.