Roth IRA Rollover Rules: Conversions, Five-Year Clocks & Deadlines

Rolling money into a Roth IRA turns tax-deferred savings into tax-free retirement income, but the move itself has a cost: every pre-tax dollar you convert becomes ordinary income in the year of the rollover. The Roth IRA rollover rules govern how you move the money, when the tax hits, how long you have to wait before touching the funds, and which accidental missteps trigger a 10% penalty. Get the method and the timing right and the conversion is straightforward. Get them wrong and you can owe tax on money you never intended to distribute, plus penalties on top.¹

Two Ways to Move the Money

A direct rollover, sometimes called a trustee-to-trustee transfer, sends funds straight from your old account custodian to your Roth IRA custodian. You never take possession of the money, nothing is withheld, and there’s no deadline to miss. For almost everyone, this is the right method.

An indirect rollover puts a check in your hands. From the date you receive the distribution, you have 60 days to deposit the full amount into a Roth IRA. Miss the window and the entire distribution becomes taxable income, with an added 10% early withdrawal penalty if you’re under 59½.²

The 20% Withholding Trap

If you take an indirect rollover from an employer plan such as a 401(k), the plan administrator must withhold 20% of the taxable amount for federal income tax, even when you plan to complete the rollover within 60 days.³ Say your 401(k) distributes $50,000 and withholds $10,000. You receive $40,000. To avoid having that withheld $10,000 treated as a taxable distribution, you have to come up with $10,000 from other funds and deposit the full $50,000 into the Roth IRA within 60 days. You get the $10,000 back when you file your return, but you need the cash on hand first. A direct rollover avoids this entirely.

The One-Per-Year Limit

You can do only one indirect IRA-to-IRA rollover in any 12-month period, regardless of how many IRAs you own.² A second indirect rollover inside that window becomes a taxable distribution. Direct trustee-to-trustee transfers don’t count against the limit, and rollovers from employer plans don’t either.

How the Conversion Is Taxed

Whether you’re moving money out of a 401(k), 403(b), governmental 457(b), Traditional IRA, SEP IRA, or SIMPLE IRA, the tax treatment is the same. Pre-tax dollars going into the Roth get added to your ordinary income for the year.¹ A $50,000 conversion stacks on top of your salary and other income. That stack can push you into a higher marginal bracket, increase the taxable portion of Social Security benefits, or trigger the net investment income tax.

Report the taxable portion on your Form 1040 for the conversion year. If any of the money coming out of a Traditional IRA has after-tax basis attached to it, file Form 8606 with your return.⁴

A large conversion can also leave you underwithheld for the year. The IRS expects tax to be paid as income is earned, and you’ll generally owe an underpayment penalty unless you owe less than $1,000 at filing time or have paid in at least 90% of the current year’s tax (or 100% of last year’s tax) through withholding and estimated payments.⁵ If a conversion pushes you past those safe harbors, make a quarterly estimated payment rather than waiting until April.

No Income Limit on Conversions

Roth IRA contributions phase out at higher incomes. For 2026, the direct contribution phase-out runs from $153,000 to $168,000 for single filers and from $242,000 to $252,000 for married couples filing jointly.⁶ Conversions have no income cap. Anyone can convert Traditional IRA or employer plan money to a Roth regardless of what they earn.

The Pro-Rata Rule for Traditional IRAs

If you’ve ever made nondeductible contributions to a Traditional IRA, you might assume you can convert just the after-tax portion and skip the tax bill. The pro-rata rule blocks that. All your Traditional, SEP, and SIMPLE IRA balances get treated as a single pool when calculating the taxable portion of a conversion, measured as of December 31 of the conversion year.⁷

Here’s how the math works. You hold $100,000 across all Traditional IRAs and have $10,000 of nondeductible basis tracked on Form 8606. You convert $20,000. The tax-free share of the conversion is the ratio of basis to total balance: $10,000 ÷ $100,000, or 10%. That makes $2,000 of the conversion tax-free and $18,000 ordinary income. The ratio applies even if the $10,000 of after-tax money sits in a completely separate IRA from the one you converted.

Tracking basis matters. Your basis is the running total of nondeductible contributions you’ve made over the years, and you report it on Form 8606 each year you make a nondeductible contribution or take a distribution.⁸ Skip the form and you risk paying tax twice on the same money. The IRS also charges a $50 penalty for failing to file when required.⁴

Timing Rules That Catch People Off Guard

The December 31 Deadline

A conversion must be completed by December 31 of the year you want it to count for. Regular IRA contributions can be made up to the April tax-filing deadline for the prior year; conversions cannot. A transfer initiated on December 30 that doesn’t settle until January 2 counts as a next-year conversion.

Take Your RMD First

If you’re required to take a required minimum distribution from a Traditional IRA or employer plan, satisfy the RMD before converting anything else. The IRS treats the first dollars out of the account in a given year as the RMD, and RMDs are not eligible for rollover into a Roth IRA.⁹ Accidentally convert the RMD amount and it becomes an excess contribution to the Roth, subject to a 6% excise tax for every year it stays there.

The SIMPLE IRA Two-Year Rule

SIMPLE IRAs carry their own restriction. During the first two years of plan participation, you can only transfer SIMPLE IRA funds to another SIMPLE IRA. Convert to a Roth (or any non-SIMPLE account) inside that two-year window and the IRS treats it as a distribution subject to a 25% additional tax, steeper than the usual 10% penalty.¹⁰ After the two-year period, conversions follow the normal rules.

The Two Five-Year Clocks

Roth IRAs run two separate five-year clocks. They start at different times and do different jobs, and mixing them up is one of the most common Roth mistakes.

The Account Clock (for Earnings)

The first clock decides when earnings can come out tax-free. It starts on January 1 of the tax year you first funded any Roth IRA, whether by contribution or conversion. For earnings to be tax-free, five tax years must have passed and one of these must be true: you’re 59½ or older, you’re disabled, you’re a first-time homebuyer (up to $10,000 lifetime), or the money is going to a beneficiary after your death.¹¹ A distribution that satisfies both is a “qualified distribution” and comes out completely tax- and penalty-free.

You start this clock only once. Fund a Roth IRA in 2020 and the five-year period ends January 1, 2025. Every Roth IRA you later own inherits the same start date.

The Conversion Clock (for the 10% Penalty)

The second clock applies to each conversion separately and exists so people can’t use conversions to sidestep the early withdrawal penalty. Each conversion starts its own five-year clock on January 1 of the conversion year. Withdraw converted principal before that five years is up while under 59½ and you owe a 10% penalty on the amount withdrawn.¹² The income tax was settled in the conversion year, so you won’t owe that again.

Once you reach 59½, the conversion clock stops mattering for penalty purposes. The age-59½ exception to the 10% penalty applies whether or not five years have elapsed. Death and disability also exempt you. The conversion clock is really only a concern for people converting well before 59½ who might need the money within five years.

How Withdrawals Are Ordered

The IRS applies a specific order to Roth IRA distributions, and the order works in your favor:¹³

Regular contributions come out first, tax- and penalty-free at any age, with no waiting period. You already paid tax on them.
Conversions and rollovers come out next, on a first-in, first-out basis. The taxable portion of each conversion comes out before the nontaxable portion, and earlier conversions before later ones.
Earnings come out last and need a qualified distribution to avoid tax and penalty.

The ordering means you exhaust contributions and converted principal before touching any earnings, which gives most converters a substantial buffer.

Rolling a Roth 401(k) Into a Roth IRA

Moving Roth 401(k) money to a Roth IRA is not a taxable event. Both are Roth accounts. But there’s a five-year wrinkle. Once the money lands in a Roth IRA, the Roth IRA’s own account clock governs the earnings, not the 401(k)’s clock. If your Roth 401(k) has been open eight years but your Roth IRA is only a year old, the rolled-over earnings can’t come out tax-free until the Roth IRA’s five-year period is met. Opening and funding a Roth IRA well ahead of the rollover, even with a small contribution, starts the clock early and prevents the problem.

Inherited IRAs Have Different Rules

Whether you can convert an inherited Traditional IRA depends on your relationship to the person who died. A surviving spouse can elect to treat the inherited IRA as their own, which lets them convert to a Roth under the normal rules: the amount is included in income, the pro-rata rule applies if they have other IRA balances, and the standard five-year clocks apply. The spouse must satisfy any RMD the deceased owed for the year of death before rolling over the remainder.

Non-spouse beneficiaries cannot convert an inherited Traditional IRA to a Roth. For account owners who died in 2020 or later, most non-spouse beneficiaries must empty the inherited account within 10 years under the SECURE Act.¹⁴

529 to Roth IRA Rollovers

Starting in 2024, the SECURE 2.0 Act allows leftover 529 plan funds to be rolled into a Roth IRA for the plan’s beneficiary. The 529 account must have been open at least 15 years, and the lifetime rollover cap is $35,000. Annual rollovers cap at the Roth IRA contribution limit for that year ($7,500 in 2026), and contributions made to the 529 within the last five years aren’t eligible.⁶ The rollover is tax- and penalty-free when done correctly, and it counts against the beneficiary’s annual Roth IRA contribution room.

You Cannot Undo a Conversion

Before 2018, you could reverse a conversion (a “recharacterization”) if the account lost value after the fact, so you weren’t stuck paying tax on a balance that no longer existed. The Tax Cuts and Jobs Act eliminated that option for conversions completed after December 31, 2017.¹⁵ Once you convert, the tax bill is locked in. Regular Roth IRA contributions can still be recharacterized back to Traditional IRA contributions, but conversions cannot. If the market drops sharply the month after you convert, you’ve paid tax on the pre-drop value and there’s no way back.

1
Office of the Law Revision Counsel. 26 U.S. Code 408A – Roth IRAs
2
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
3
Internal Revenue Service. Publication 590-A (2025), Contributions to Individual Retirement Arrangements (IRAs) – Section: Rollover From Employer’s Plan Into a Roth IRA
4
Internal Revenue Service. Instructions for Form 8606 (2025)
5
Internal Revenue Service. Topic No. 306, Penalty for Underpayment of Estimated Tax
6
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
7
Internal Revenue Service. Instructions for Form 8606 (2025) – Section: Part II, Conversions From Traditional IRAs to Roth IRAs
8
Internal Revenue Service. Instructions for Form 8606, Nondeductible IRAs
9
Internal Revenue Service. IRS Roth Conversions – Retirement Planning for Life Events
10
Internal Revenue Service. SIMPLE IRA Withdrawal and Transfer Rules
11
Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs) – Section: What Are Qualified Distributions
12
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
13
Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs) – Section: Ordering Rules for Distributions
14
Internal Revenue Service. Retirement Topics – Beneficiary
15
Internal Revenue Service. Retirement Plans FAQs Regarding IRAs – Section: Recharacterization of IRA Contributions