When Is the Roth Conversion Deadline?

The deadline for converting funds from retirement and other accounts to a Roth IRA is December 31 of the tax year in which the converted funds will be taxed. Many retirement savers opt for a Roth IRA conversion to take advantage of tax-free withdrawals in retirement. Additionally, conversions provide a way for high earners to bypass income limits on Roth contributions. Any conversion completed by December 31 will be subject to taxes for that year, while those made after this date will be taxed in the following year. The timing of the conversion can impact both the tax liability on the converted amount and an individual’s overall tax rate.

A financial advisor can help you decide whether and when to convert an IRA or other account to Roth IRA.

Roth IRA Conversion Basics

Funds in IRAs and other financial accounts can be converted to Roth IRAs as long as the owner pays taxes on the converted funds before they are placed in the Roth IRA. Retirement savers may choose to convert a different type of account to a Roth IRA because funds in a Roth IRA can be withdrawn later without owing taxes. Roth IRAs also are not subject to the Required Minimum Distribution rules that make it mandatory for savers to take money from their retirement accounts after a certain age.

Roth IRA Conversion Deadline

Taxpayers must pay taxes on funds converted to a Roth IRA, with the tax liability due for the year in which the conversion is completed. The deadline for Roth IRA conversions is December 31 of that year. Any conversions made between January 1 and December 31 are taxed in that same year, while those completed after December 31 will be subject to taxation in the following tax year.

It’s important to distinguish between the Roth IRA conversion deadline and the Roth IRA contribution deadline. Contributions to a Roth IRA can be made up until April 15 and still count toward the previous tax year. In contrast, Roth IRA conversions completed after December 31 are reported for the current tax year.

Awareness of these deadlines can help retirement savers manage their tax liabilities more effectively. For example, completing a Roth IRA conversion before December 31 may be beneficial if the tax owed on the conversion is lower than it would be in the following year. However, if the conversion increases taxable income enough to push the taxpayer into a higher tax bracket, it may be more advantageous to delay the conversion until the next year or distribute it over multiple years.

Roth IRA Conversion Process

Converting a traditional IRA to a Roth IRA requires filling out a form or following some simple instructions from the brokerage or other firm where the Roth IRA will be housed. There are two important matters that require attention before engaging in this process, however.

The first involves another deadline. The IRS requires funds withdrawn from an IRA to be rolled over into a new IRA or another retirement account within 60 days. If this rollover is not completed within that time, the account owner may owe a 10% penalty on the withdrawn funds as well as any income taxes due at the owner’s regular rate. Instructing a brokerage or other financial institution to handle the conversion will avoid this possibility. But account owners who withdraw IRA funds for deposit into a Roth IRA may incur significant financial costs if they delay past the 60-day deadline.

Another key consideration is that taxes on converted funds must be paid before the conversion can complete. Roth IRAs are funded with after-tax money. This means the owner must pay taxes at their regular rate on the money being converted. Finally, Roth IRA conversions are one-way. The funds converted to a Roth IRA cannot be converted back to their previous status.

Roth IRA conversions can affect taxes, future withdrawals and long-term retirement income flexibility. Use SmartAsset’s retirement calculator to estimate how different retirement account strategies may impact your financial future.

Bottom Line

Roth IRA conversions can potentially help you save on taxes in retirement, avoid having to take Required Minimum Distributions and escape income limits on Roth IRA contributions. Funds from retirement and other accounts can be converted to Roth IRA accounts as long as the tax owed is paid at the time of the conversion. A conversion has to be completed during the year during which the taxpayer wants to pay the taxes. Conversions occurring after December 31 of a given year are considered to have occurred during the following year for tax purposes.

Tips for Retirement

• Consider talking to a financial advisor before making decisions about a Roth IRA conversion. They can help you figure out the right vehicle to invest your assets. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• SmartAsset’s Federal Income Tax Calculator can help you estimate how much you will owe in taxes. Just enter your income, location and filing status and you’ll get a customized projection of how much you’ll owe in federal income taxes, including FICA. You’ll also get a breakdown showing your marginal and effective tax rate.

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