Four Different Ways to Do a Roth Conversion (Plus How to Contribute to a Roth IRA if You Are a High-Income Earner)

A Roth IRA conversion typically involves transferring retirement funds from a traditional-type IRA, a 401(k) or 403(b), into a Roth account. This strategy can make sense and potentially save you money in taxes if you believe you will be in a higher tax bracket in the future.

As the account holder, you pay taxes on any tax-deferred money you’re converting into your Roth, but all of the growth (after the conversion) and the withdrawals from the Roth account can be eligible for tax-free distributions in the future.

I like to use the analogy that Roth conversions can be like ripping off a band-aid because many people feel pain when they pay that tax bill on their Roth conversion. However, that pain could potentially be greater if you wait longer to pay income taxes on your tax-deferred money!

Did you know you can take a band-aid off with less pain by gently rubbing it with baby oil, olive oil, baby shampoo, or petroleum jelly?

Similarly, some strategies can lessen the pain of the taxes you can pay on your tax-deferred 401(k), 403(b), or your rollover IRA accounts. A Roth IRA distribution and conversion analysis can help you determine if it could save you taxes by paying taxes now, later, or strategically along the way (up to a particular tax bracket).

As you will see in the below scenario, there is some temporary pain from a tax liability standpoint with this projected Roth conversion strategy. This investor encounters a higher short-term effective tax rate while completing Roth conversions (i.e., ripping the band-aid off) between ages 47 and 60.

But as you can see, this investor may have over 30 years of being in a lower tax rate during retirement, which can help lower an investor’s lifetime income tax bill.

*Hypothetical scenario for illustrative purposes only

Often, a Roth conversion analysis projects that ripping some of the band-aid off, and paying taxes strategically through Roth conversions, can be worth it and save a potentially significant amount in lifetime taxes!

*Hypothetical scenario for illustrative purposes only

However, Roth conversions do not make sense for everyone. We regularly see scenarios that project no savings or even less tax-adjusted wealth, like the hypothetical one below that shows $1.3 million dollars less.

Do you need assistance completing a retirement distribution and Roth conversion analysis?

Get started now by requesting a consultation — it’s just three simple steps.

  • Schedule your complimentary initial consultation
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You don’t need to be retired to complete an analysis. It can actually be more beneficial to complete a Roth conversion analysis for investors in their 40s and 50s because they have more time for their strategy to work.

How Roth Conversions Work

There are typically three steps to a Roth conversion.

Step 1: Complete a form to move eligible tax-deferred money (401(k), 403(b), traditional IRA, etc.) into a Roth account. The financial institution sends you a 1099-R form at year-end to notify the IRS of your conversion. The conversion amount will help you calculate the income tax due on your conversion.

Step 2: You pay tax on the Roth conversion (This is where you rip off the band-aid!)

Just make sure not to miss the due date on your estimated tax to avoid paying an underpayment penalty.


The penalty for making a late payment can be up to 0.5% of the unpaid taxes for each month or part of a month the tax remains due past the deadline.

Step 3:  This step is the best. Enjoy tax-free growth and income for qualifying withdrawals!

Four Roth Conversion Scenarios

You might wonder how you could get more funds into a Roth account to help lower your lifetime tax bill. The most common methods we see for Roth Conversion are:

#1: You have tax-deferred money in a 401(k) or 403(b) that permits you to withdraw or “roll over” money into a Roth IRA

In this scenario, you have money in an eligible 401(k) or 403(b) plan, and you want to convert eligible rollover money into a Roth IRA where you, or your advisor, can manage it. The key is that your employer’s or previous employer’s plan must allow you to complete your rollover.

Typically, if you’ve separated from service, you can roll over all of your vested account balance. If you are still working, you may also be able to complete a rollover.

After you verify that you can roll over your account and have determined that the rollover of assets in your best interest, you work with the financial institution to roll over your funds from your 401(k) or 403(b) into your Roth IRA account.

#2: Partial or delayed conversions of a 401(k) or 403(b) plan

Suppose we run a Roth conversion analysis, and your plan suggests a partial Roth conversion. Similar to the above scenario, you would have money in a 401(k) or 403(b) plan that permits you to roll over your funds out of the plan.

You would first roll over eligible money into a Traditional IRA. From there, your advisor could help you convert the desired amount from your Traditional IRA into your Roth IRA.

Suppose your analysis suggested that you defer Roth conversions for a few years. In that case, you could roll over the money now into a Traditional IRA, where there’s no tax due on Traditional IRA roll overs when done correctly. Then, your advisor could help you strategically convert your rollover IRA into your Roth based on your plan’s optimal conversion strategy.

#3: Traditional or Rollover IRA

It’s also possible that you have money in an IRA from prior contributions or past employment. You convert all or some of this money to a Roth IRA. You pay taxes on the conversion and then enjoy tax-free qualified distributions.

#4: In-Plan Conversions

In-plan conversions are not always allowed. However, some 401(k) and 403(b) plan documents allow for in-plan conversions.

Like the above strategies, you complete a form that executes a Roth conversion. The process for in-plan conversions moves money from your tax-deferred 401(k) or 403(b) into your Roth 401(k) or Roth 403(b) account. You pay taxes on the conversion and then enjoy tax-free qualified distributions.

One downside to the Roth 401(k) or Roth 403(b) is that you can’t access your principal before age 59 ½ without paying a penalty, or you might be required to take out a loan (and pay loan fees and interest).

What is one significant difference between a Roth IRA and a Roth 401(k)?

You can withdraw contributions you made to your Roth IRA anytime, tax and penalty-free. So hypothetically, if you put $6,000 directly into your Roth IRA for ten years, you can take out $60,000 ($6,000 x 10) before age 59 1/2 without penalty.

Within a Roth 401(k) or a Roth 403(b) account, you may be able to access funds through a loan, but it’s typically limited to $50,000 or half the account balance (whatever is less), and you can be stuck paying interest and loan fees.

You can even get at your Roth IRA conversions penalty and tax-free before age 59 ½, but you have to wait five years. How does the five-year window work for Roth IRA withdrawals?

Let’s assume you converted $100k into a Roth IRA at age 40 and grew to $200k by age 55; you could access the $100k tax and penalty-free! You couldn’t access the earnings tax-free until after age 59 ½.

Do you make too much to contribute directly to a Roth IRA?

The Backdoor Roth Strategy

As we saw earlier, there are income limits on Roth IRA contributions. So, if you are a high-income earner, you may think you are not eligible to contribute to a Roth IRA. But there is an entirely legitimate strategy called the Backdoor Roth IRA.

Click here to read an in-depth post on the Backdoor Roth strategy and two other strategies to consider if you make too much to contribute to a Roth IRA.

This is the fourth post in our Roth IRA Conversion Series; if you are wondering whether you should add funds to a Roth account, check out this post, where we cover this topic in depth. We also have a post that discusses how Roth IRA withdrawal rules differ from 401(k) and 403(b) accounts, which you can read by clicking here.

Remember that adding funds to a Roth account is only one of dozens of strategies that could help to lower your tax bill. If you are wondering whether you might be missing opportunities to reduce your tax bill, I encourage you to take our Tax Minimization Assessment. It helps you explore options to keep more of your hard-earned money so that you have more for what matters.

Or, schedule a 90-minute, no-obligation consultation with me. For the last 19 years, I’ve been working hard to help my clients learn how they can minimize their tax bills and gain more control over their wealth. I’d love to help you too!

Disclosure: One Life Financial Group provides a comprehensive tax minimization process, and uses sophisticated software, to help you uncover opportunities to minimize your tax bill. However, One Life does not process tax returns. Discuss all tax planning opportunities with your accountant before implementing tax planning strategies.