Quick answer. A Roth conversion moves eligible retirement funds into a Roth IRA. Previously untaxed converted amounts generally enter taxable income in the conversion year. A conversion is not an ordinary annual IRA contribution and does not consume the annual contribution ceiling.
Why this matters
A retirement-account decision can affect taxes, liquidity, custody, fees and the ability to change providers. Understanding the mechanics comes before deciding whether digital assets belong in an IRA.
Worked example
A hypothetical $40,000 fully pretax conversion at a 24% marginal federal rate could add $9,600 of federal income tax if all dollars fall in that bracket; actual tax depends on total income, deductions, state taxes and other circumstances.
Questions to ask before acting
- What account or plan type do I have today?
- What are the full dollar costs, including less visible fees?
- What tax or distribution consequences could apply?
- Which entity is responsible for custody and account records?
- Can I reverse or change the decision, and what will that cost?
Important limitation
Conversions after 2017 generally cannot be recharacterized back to a traditional IRA.
Related resources
Primary reference
Educational information only. Not individualized tax, legal or investment advice.