Roth Conversion 2026: Year-End Deadline, No Recharacterization, RMD Sequencing, Pro-Rata Rule and Form 8606 for US CPA Firms
Year-end Roth conversion season is a calendar deadline, not a filing-season grace period. A conversion from a traditional, SEP or SIMPLE IRA into a Roth IRA is taxed as ordinary income in the year the untaxed amounts leave the traditional IRA, and for a 2026 conversion that work generally must finish by December 31. Insight Wealth Strategies (Oct. 12, 2026) notes that OBBBA did not create a new federal conversion rule—but rate and deduction changes can still change the tax cost. For US CPA firms, the traps are no recharacterization, RMD sequencing, the Form 8606 pro-rata rule, and AGI side effects that show up years later.
What a Roth conversion is—and how it is taxed
Per the IRS Retirement plans FAQs regarding IRAs, you can convert by a 60-day rollover, a trustee-to-trustee transfer, or a same-trustee transfer. Untaxed amounts in the traditional IRA are taxed on conversion; report it on Form 8606. Publication 590-B confirms that a conversion is treated as a distribution for income-inclusion purposes and that included amounts are ordinary income—no preferential capital-gains rate. Unlike a regular IRA contribution (often allowed through the following year’s return due date without extensions), a conversion is timed to when the traditional-IRA distribution or trustee transfer happens.
Irreversible after 2017—and RMDs cannot be converted
IRS FAQs and the Instructions for Form 8606 (2025) state that a conversion from a traditional, SEP or SIMPLE IRA to a Roth IRA—and a rollover from another eligible retirement plan to a Roth IRA—made in tax years beginning after December 31, 2017, cannot be recharacterized as a contribution to a traditional IRA (TCJA / P.L. 115-97). Once the 2026 conversion is done, clients cannot unwind it if markets drop or brackets look worse than modeled.
Required minimum distributions cannot ride along. Treas. Reg. §1.408A-4 A-6 says an amount must be eligible to be rolled over to be eligible for conversion, and section 408(d)(3) prohibits rolling over an RMD. The first dollars distributed from an IRA in a year that requires an RMD are treated as the RMD until that amount is satisfied. If an RMD is deposited into a Roth IRA, it is treated as a regular Roth contribution, not as a conversion contribution. Satisfy the RMD first (see our RMD and Form 5329 guide), then convert from what remains.
Pro-rata rule, year-end aggregation and Form 8606
Clients with nondeductible traditional-IRA basis often ask to “just convert the after-tax IRA.” Form 8606 does not work that way. When basis exists, Pub. 590-B requires Form 8606 to split each distribution (including a conversion) between nontaxable return of basis and taxable amounts. Part I aggregates all traditional IRAs—including SEP and SIMPLE IRAs treated as traditional for this purpose—using December 31 values plus outstanding rollovers. Part II reports the year’s conversions. You cannot cherry-pick one IRA’s after-tax dollars while ignoring pre-tax balances elsewhere. Inventory every IRA, confirm prior Form 8606 basis, and project the taxable fraction before paperwork goes out.
Two different five-year clocks
Do not conflate the two five-taxable-year rules. A qualified distribution generally requires a five-taxable-year period that begins with the first regular Roth contribution or conversion to any of the owner’s Roth IRAs (Treas. Reg. §1.408A-6 A-1 and A-2). Separately, each conversion has its own five-year clock for the 10% additional tax under section 72(t): if the owner withdraws amounts attributable to the taxable portion of that conversion within five years, Pub. 590-B and §1.408A-6 A-5 say the 10% tax can apply even when the distribution is otherwise a nontaxable return of conversion basis, unless a section 72(t) exception applies. Ordering rules pull regular contributions first, then conversion contributions FIFO, then earnings.
AGI side effects: IRMAA, Social Security, senior deduction, NIIT MAGI
Conversion income raises AGI and MAGI. Social Security Administration materials explain that Medicare’s income-related monthly adjustment amount (IRMAA) generally uses MAGI from the tax year two years before the premium year—so a large 2026 conversion can affect 2028 Part B and Part D premiums. Taxable conversions can also increase the taxable share of Social Security benefits under section 86 (see our Social Security benefits tax guide).
For clients age 65 or older, IRS FS-2025-03 describes an enhanced senior deduction of $6,000 per eligible individual for 2025–2028 (in addition to the existing additional standard deduction for seniors), phasing out for modified AGI over $75,000 ($150,000 joint). Schedule 1-A Part V reduces the $6,000 by 6% of MAGI above those thresholds—so a conversion that pushes MAGI into the phaseout can shrink or eliminate it. Publication 590-B notes that IRA distributions are not net investment income for the 3.8% NIIT, but they count in MAGI and can still move a client toward the Form 8960 thresholds in our NIIT and Form 8960 article.
What US CPA firms should tell clients before Dec. 31, 2026
- Model tax first. Estimate ordinary-income inclusion and whether cash outside the IRA will pay the tax.
- Respect irreversibility. No recharacterization for post-2017 conversions; size partial conversions deliberately.
- RMD before conversion in any year an RMD is due.
- Run Form 8606 pro-rata math across all traditional IRAs before promising a “basis-only” conversion.
- Stress-test AGI: IRMAA two years out, Social Security taxation, senior-deduction phaseout, and NIIT MAGI.
- Leave custodian time. Insight Wealth Strategies points clients toward a mid-November review so trustee transfers clear by December 31—operational lead time, not an IRS due date.
A short firm checklist
- List conversion candidates and whether a 2026 RMD is still outstanding.
- Pull prior Forms 8606 and year-end IRA values for the pro-rata worksheet.
- Project 2026 AGI/MAGI with and without the conversion (IRMAA, §86, senior deduction, NIIT MAGI).
- Confirm the tax-payment source and estimated-tax needs.
- Initiate trustee transfers early enough to settle by December 31; document Form 8606 Part II for the return.
Where this fits for Tax Brew readers
Year-end Roth conversion work is sequencing, Form 8606 math and multi-year AGI modeling for firms serving pre-retirees and RMD-age clients. If your firm needs capacity, outsourced tax prep and bookkeeping support for US CPA firms can help. Email info@taxbrewglobal.com.
Frequently asked questions
Can I undo a Roth conversion after Dec. 31, 2017?
No. IRS Retirement plans FAQs and the Instructions for Form 8606 state that a conversion from a traditional, SEP or SIMPLE IRA to a Roth IRA—and a rollover from another eligible retirement plan to a Roth IRA—made in tax years beginning after December 31, 2017, cannot be recharacterized as a contribution to a traditional IRA.
Can I convert my required minimum distribution to a Roth IRA?
No. Treas. Reg. §1.408A-4 A-6 says an amount must be eligible to be rolled over to be converted, and section 408(d)(3) prohibits rolling over an RMD. Take the RMD first; only amounts beyond the RMD may be converted. An RMD deposited into a Roth IRA is treated as a regular contribution, not a conversion.
How does the pro-rata rule affect a Roth conversion?
If you have nondeductible basis in any traditional IRA, Form 8606 Part I aggregates all traditional IRAs (including SEP and SIMPLE IRAs treated as traditional for this purpose) using December 31 values plus outstanding rollovers, then allocates each conversion between nontaxable basis and taxable amounts. You generally cannot isolate after-tax dollars in one IRA while ignoring pre-tax balances in others.
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