How Are Roth Conversions Taxed in 2026?

The short answer: ordinary income. But that's only the first layer. For most retirees doing conversions in the 60-73 golden window, there are four tax layers — and only modeling all four tells you what your conversion actually costs.

Layer 1: Federal income tax

A Roth conversion is treated as ordinary income in the year you convert — the same as wages, pension income, or traditional IRA withdrawals.¹ It is not taxed at capital gains rates, even if the underlying IRA held stocks that appreciated. The full converted amount (minus any after-tax basis — see below) is added to your adjusted gross income and taxed at your marginal federal income tax rate.

2026 federal income tax brackets (taxable income thresholds):¹

Standard deduction in 2026 (reduces gross income before applying brackets):¹

• Single: $16,100 (add $2,050 if age 65+)
• MFJ: $32,200 (add $1,650 per qualifying 65+ spouse)

The standard deduction is your first shelter. A couple both over 65 can have $35,500 of income before paying a dime in federal tax. Conversion income fills that shelter first — meaning the first dollars of a conversion may land in the 10% or 12% bracket, not a higher one.

Layer 2: The Social Security torpedo

This is the hidden tax most pre-retirees miss. When you add conversion income to your AGI, you can trigger more of your Social Security benefits to become taxable — effectively adding a surcharge on top of your bracket rate.

How it works: The IRS calculates "combined income" as:

Combined income = AGI (excluding SS) + nontaxable interest + ½ of your annual Social Security benefit

Then, for MFJ filers:²

• Under $32,000 combined income: 0% of SS benefits taxable
• $32,001 – $44,000: up to 50% of SS benefits taxable (the 50% phase-in zone)
• Over $44,000: up to 85% of SS benefits taxable (the 85% ceiling)

(Single filer thresholds: $25,000 / $34,000.)

The torpedo effect: In the phase-in zones, every $1 of conversion income adds $0.50 or $0.85 of additional taxable SS income on top. This inflates your effective marginal rate:

• In the 50% SS phase-in zone: effective marginal rate = nominal bracket × 1.50
  Example: 12% bracket × 1.50 = 18% effective
• In the 85% SS phase-in zone: effective marginal rate = nominal bracket × 1.85
  Example: 12% bracket × 1.85 = 22.2% effective

This is why a couple converting at what appears to be a 12% rate can actually be paying 18-22% all-in — and why modeling Social Security income alongside conversions is not optional. The torpedo is a real cost, not a rounding error.

When you're already above the 85% ceiling (combined income already exceeds $44K MFJ before the conversion), additional conversion income does not trigger more SS taxation — the torpedo has already landed. The effective rate returns to your nominal bracket rate.

See also: Roth Conversion + Social Security: How the Torpedo Works With Numbers

Layer 3: IRMAA Medicare surcharges

If you are on Medicare, conversion income in 2026 will affect your 2028 Medicare Part B and Part D premiums via the two-year IRMAA lookback. This is effectively a third tax layer — not on your 1040, but as higher insurance premiums two years later.

2026 IRMAA thresholds (MAGI-based; for 2028 premium effect):³

IRMAA surcharges are cliff-based, not gradual: one dollar over a tier threshold triggers the full surcharge. For a couple, crossing from below $218K to above it in 2026 costs an additional $1,948 per year in 2028 premiums ($974 × 2 people). Tier 5 costs $11,688/year more than the base premium for a couple.

The two-year lookback means strategic timing matters: conversions in 2026 determine 2028 IRMAA; conversions in 2025 affect 2027 premiums. A specialist plans the conversion ceiling to stay just under the relevant IRMAA tier — or consciously crosses it when the long-term conversion benefit exceeds the surcharge cost.

See also: IRMAA and Roth Conversions: Complete Strategy Guide | IRMAA-Aware Conversion Calculator

Layer 4: State income taxes

Roth conversion income is subject to state income tax in most states, because most states conform to federal ordinary income treatment. The impact varies dramatically:

• No state income tax (9 states): Florida, Texas, Nevada, Washington, Wyoming, South Dakota, Alaska, Tennessee, New Hampshire — no state tax on conversions.
• Full IRA/pension exemption (4 states): Illinois, Iowa, Mississippi, Pennsylvania — traditional IRA withdrawals and conversions are excluded from state taxable income.
• High state tax states: California (13.3% top rate, no retirement income exemption), Oregon (9.9%), Minnesota (9.85%) apply their full rate to conversion income.

State tax rates of 5-13% can add $5,000-$13,000 to the cost of a $100,000 conversion. If you're planning to relocate to a no-tax state in retirement, timing your largest conversions after the move can save significant state tax.

See also: State Taxes on Roth Conversions: A State-by-State Guide

What's NOT taxed: your after-tax IRA basis

If you've ever made non-deductible contributions to a traditional IRA (contributions you didn't deduct because your income was too high or you were covered by a workplace plan), that after-tax money — your "basis" — is not taxed again on conversion.

The IRS tracks basis on Form 8606. The taxable portion of your conversion is determined by the pro-rata rule: if 5% of your total IRA balance is after-tax basis, then 5% of any conversion is tax-free, regardless of which IRA you convert from. The remaining 95% is ordinary income.

This means:

• A $100K conversion with a 5% basis = $5,000 tax-free, $95,000 ordinary income
• A $100K conversion with a 0% basis (common for rollovers from a 401k) = $100,000 ordinary income
• A $100K conversion with 100% basis (rare, but possible with a nondeductible IRA never grown) = $0 ordinary income

If you've ever made nondeductible IRA contributions, find your most recent Form 8606 before your first conversion — your advisor needs that basis figure. Starting conversions without accounting for basis means you may pay more tax than you owe.

See also: The Pro-Rata Rule and Roth Conversions

Worked example: four layers together

Let's put all four layers together for a realistic pre-retiree scenario.

Layer 1: Federal income tax

• Non-SS income (pre-conversion): $28K + $8K = $36,000
• Non-SS income (with conversion): $36K + $75K = $111,000
• Combined income (with conversion): $111K + $21K (= ½ × $42K SS) = $132,000
• $132K > $44K MFJ → 85% of SS taxable: 0.85 × $42K = $35,700
• AGI = $111K + $35.7K = $146,700
• Standard deduction (both 65+): $32,200 + $3,300 = $35,500
• Taxable income = $146,700 − $35,500 = $111,200
• Federal tax = $24,800 × 10% + $76,000 × 12% + $10,400 × 22% = $2,480 + $9,120 + $2,288 = $13,888

Without the conversion, their federal tax would be approximately $2,700 (pension + dividends + SS, in the 10% bracket). So the conversion adds roughly $11,188 in federal income tax.

Federal effective rate on the $75K conversion: 14.9% — higher than the nominal 12% bracket because the conversion also lifted $35.7K of SS into taxability at their marginal rate (the torpedo, since their combined income was already near the 85% SS ceiling before the conversion).

Layer 2: Social Security torpedo

In Barbara and Ken's case, they were already above the $44K combined-income threshold before the conversion (their pre-conversion combined income = $36K + $21K = $57K). That means the SS torpedo already landed — 85% of their SS was taxable regardless. The $75K conversion didn't trigger additional SS taxation. Torpedo impact: $0 additional (already fully exposed).

Note: If their non-SS income had been lower — say, only $10K — the conversion would have pushed combined income from $31K (barely under the $32K threshold) all the way to $106K, triggering the full SS torpedo mid-conversion and raising the effective rate to 18-22%.

Layer 3: IRMAA surcharges

• 2026 conversion MAGI ≈ $146,700 (above $109K single equivalent, but they file MFJ)
• MFJ IRMAA Tier 1 threshold: $218,000. Barbara and Ken are well below → no IRMAA surcharge triggered

If they had converted $200K instead of $75K, their MAGI would reach ~$271K, crossing the $218K MFJ Tier 1 threshold and adding $1,948/year in 2028 premiums.

Layer 4: State taxes (Virginia)

• Virginia taxes conversion income as ordinary income at rates up to 5.75%
• Approximate state tax on $75K conversion: ~$4,300

All-in cost of the $75,000 conversion:

• Federal income tax attributable to conversion: ~$11,188
• SS torpedo impact: $0 (already past ceiling)
• IRMAA: $0 (below MFJ Tier 1)
• Virginia state tax: ~$4,300
• Total estimated tax cost: ~$15,488
• All-in effective rate: ~20.7%

Converting at 20.7% now, versus paying 32%+ in RMDs at 73 when their $1.8M IRA (still compounding) forces annual withdrawals of $75-100K on top of Social Security — that spread is where the value is. Over 10 years of conversions, the lifetime NPV difference can exceed $300,000 for a balance like theirs.

The withholding trap: never pay taxes from the IRA itself

When you initiate a Roth conversion, most custodians offer to withhold taxes from the converted amount. Decline this option. Having the custodian withhold means:

1. The withheld amount never makes it into your Roth IRA — it's sent to the IRS instead.
2. You've converted less, so you get less lifetime Roth growth.
3. If you're under 59½, the withheld amount may be treated as a taxable distribution subject to a 10% penalty.

Instead, pay the tax bill from non-IRA funds — a taxable brokerage account, savings, or a CD that matured. This way the full $75,000 (in our example) converts and compounds tax-free in the Roth. The taxes come from outside the retirement system, preserving its full value.