Executing Roth Conversions: The Order of Operations
You know why partial Roth conversions work. You know which bracket to fill. This is the piece that tells you how to move the money without making a mistake that costs you 10% or leaves you short on your RMD.
The Order of Account Moves
1. Roll pre-tax 401(k) and 403(b) into a traditional IRA first.
You cannot do partial conversions directly from many employer plans. The 401(k) or 403(b) must go to a traditional IRA via trustee-to-trustee transfer before you convert anything.
If you have multiple old employer plans, consolidate them into one IRA. One IRA is simpler to manage and eliminates the aggregation trap (more on that below). Plus, you have lower expenses and more investment options in a tIRA.
2. Roll Roth 401(k) directly to a Roth IRA.
This is not a conversion. It is a rollover. This is not a taxable event. The money is already after-tax. You move it directly from the Roth 401(k) to a Roth IRA, where it escapes the RMD requirement entirely. Done.
3. Convert from the traditional IRA.
Once your pre-tax money is in a tIRA, you convert whatever slice you decided on. Pay the tax from your brokerage account.
The Pro-Rata Rule
This rule only applies to traditional IRAs. It has nothing to do with 401(k) plans.
The rule kicks in when you have after-tax money already sitting in a traditional IRA (non-deductible contributions — money you already paid tax on before it went in). The IRS treats all your traditional IRAs as one bucket. When you convert, the IRS calculates how much of the converted dollar came from pre-tax funds versus the basis you’ve already paid tax on.
Example: $500k in tIRA, $50k of it is basis. You convert $100k. The IRS says $10k of your conversion is already-taxed basis ($50k ÷ $500k × $100k). The remaining $90k is pre-tax and taxable. You owe ordinary income tax on $90k, not $100k. The IRS takes its share proportionally.
401(k) plans are not subject to the pro-rata rule with your IRA. If you have a large basis problem, rolling pre-tax money into a 401(k) that allows in-plan Roth conversions may be cleaner than going through the IRA. This is the cream in the coffee idea.
The Aggregation Trap
This is about RMDs, not conversions. The IRS treats all your traditional IRAs as one account for RMD purposes. If you have $200k in IRA A and $300k in IRA B, your RMD is calculated on the combined $500k.
The trap: taking money from IRA A does not separately satisfy your RMD from IRA B. If your total RMD is $20k and you take $50k from IRA A as a conversion, you’ve converted $50k but only satisfied $20k of your RMD requirement. The remaining $30k of the conversion is fine, but you still owe the full $20k RMD from the combined pool. If you don’t take it separately, you’re short.
Safe sequence: take your full RMD first, then convert.
401(k) plans are not aggregated. Each plan has its own RMD. Three 401(k)s mean three separate RMD calculations.
The Timing Decision
Conversions must be completed by December 31. The IRS does not care when you initiated the transfer.
Most people decide in November or December after they have a clear picture of their income for the year.
November: Pull a projection. What is your actual taxable income through October? What do you expect in November and December? Are you in, above, or below your goal bracket?
December: Give yourself a few business days. Some custodian transfers take 5-7 days if they’re not direct. Wire transfers are same-day; ACH is 2-3 days. Don’t wait until December 30.
After December 31: Done for the year. No retroactive conversions.
The 10% Trap
If you’re under 59½, two mistakes create a 10% penalty:
Mistake 1: You pull the tax payment from the IRA you’re converting.
Mistake 2: That distribution gets classified as an early withdrawal.
Result: you pay a 10% penalty on the money you were using to pay taxes. The IRS does not care about your intent.
Fix: pay the conversion tax from your taxable brokerage. If your brokerage account is empty and you have no cash, you have a sequencing problem. Build the cash reserve first.
Pay the taxes from your brokerage account, not your pre-tax account.
What to Actually Do This Year
One number: your goal conversion amount.
Then:
- Roll any pre-tax 401(k) or 403(b) to a traditional IRA.
- Roll Roth 401(k) to a Roth IRA.
- Consolidate old IRAs into one account at your preferred custodian.
- Take your full RMD first if you’re over 72.
- Convert to your goal bracket. Pay taxes from brokerage.
- Done before December 31.
The mechanics are not complicated. They are specific. Get the order right, and you’re fine.