Estimate the immediate tax cost of converting funds from a Traditional IRA to a Roth IRA.
Estimated Tax Cost
Estimated Total Tax Payable$0
Understanding the IRA to Roth IRA Conversion Tax
Converting funds from a Traditional IRA to a Roth IRA can be a strategic financial move, offering tax-free withdrawals in retirement. However, this benefit comes with an immediate tax implication: you must pay income tax on the converted amount in the year of the conversion. This calculator helps you estimate the immediate tax liability associated with such a conversion.
How the Conversion Tax is Calculated
The core principle is simple: the amount you convert from your Traditional IRA is treated as taxable income in the year of conversion. The tax you'll owe depends on your marginal income tax rate at both the federal and state levels.
The calculation performed by this tool is:
Federal Tax on Conversion = Conversion Amount × Your Current Federal Tax Bracket (%)
State Tax on Conversion = Conversion Amount × Your State Tax Rate (%)
Total Estimated Tax Cost = Federal Tax on Conversion + State Tax on Conversion
For example, if you convert $50,000 and are in the 24% federal tax bracket and a 5% state tax bracket, your estimated immediate tax cost would be:
Federal Tax = $50,000 × 0.24 = $12,000
State Tax = $50,000 × 0.05 = $2,500
Total Tax Cost = $12,000 + $2,500 = $14,500
Key Considerations for Roth IRA Conversions
While the tax calculation is straightforward, the decision to convert involves several factors:
Your Current vs. Future Tax Rate: The primary driver for conversion is the belief that your tax rate in retirement will be higher than your current tax rate. If you expect to be in a lower bracket now than later, conversion makes sense.
Timing of Conversion: Consider converting in years when your income is temporarily lower, placing you in a lower marginal tax bracket. This reduces the immediate tax hit.
The 5-Year Rule: For converted amounts, Roth IRA earnings can only be withdrawn tax-free after five years from the date of the conversion (and after age 59½ to avoid penalties). This applies separately to each conversion.
Source of Funds for Tax Payment: It's crucial to pay the conversion tax from funds outside your IRA. If you use IRA funds to pay the tax, that amount is also subject to income tax and potentially a 10% early withdrawal penalty if you are under 59½.
Recharacterizations: Historically, individuals could "recharacterize" a Roth conversion (treat it as if it never happened) by moving funds back to a Traditional IRA. However, this option was removed for conversions made in 2018 and later. Once converted, it's generally permanent.
Impact on Tax Bracket: Be aware that a large conversion can push you into a higher tax bracket for the year, potentially increasing the tax owed on other income.
Who Should Consider Converting?
Conversions are often beneficial for individuals who:
Anticipate being in a higher tax bracket in retirement.
Have sufficient non-IRA funds to cover the tax liability.
Are seeking tax diversification in retirement.
Want to avoid Required Minimum Distributions (RMDs) on Roth IRAs (Traditional IRAs have RMDs starting at age 73).
Are in a relatively low income year and expect future income to rise significantly.
Disclaimer: This calculator provides an estimate and is for informational purposes only. It does not constitute financial or tax advice. Consult with a qualified financial advisor or tax professional before making any decisions regarding IRA conversions.
function calculateConversionTax() {
var conversionAmountInput = document.getElementById("conversionAmount");
var currentTaxBracketInput = document.getElementById("currentTaxBracket");
var stateTaxBracketInput = document.getElementById("stateTaxBracket");
var errorMessageDiv = document.getElementById("errorMessage");
var resultBox = document.getElementById("resultBox");
var conversionTaxResult = document.getElementById("conversionTaxResult");
errorMessageDiv.textContent = ""; // Clear previous errors
resultBox.style.display = "none"; // Hide result until calculation
var conversionAmount = parseFloat(conversionAmountInput.value);
var currentTaxBracket = parseFloat(currentTaxBracketInput.value);
var stateTaxBracket = parseFloat(stateTaxBracketInput.value);
// Input validation
if (isNaN(conversionAmount) || conversionAmount <= 0) {
errorMessageDiv.textContent = "Please enter a valid positive amount to convert.";
return;
}
if (isNaN(currentTaxBracket) || currentTaxBracket 100) {
errorMessageDiv.textContent = "Please enter a valid federal tax bracket between 0% and 100%.";
return;
}
if (isNaN(stateTaxBracket) || stateTaxBracket 100) {
errorMessageDiv.textContent = "Please enter a valid state tax rate between 0% and 100%.";
return;
}
// Calculations
var federalTax = conversionAmount * (currentTaxBracket / 100);
var stateTax = conversionAmount * (stateTaxBracket / 100);
var totalTax = federalTax + stateTax;
// Display result
conversionTaxResult.textContent = "$" + totalTax.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,'); // Format with commas
resultBox.style.display = "block";
}