Roth Conversion vs. Roth Contribution

Contributions depend on compensation, filing status, modified adjusted gross income, and the annual IRA limit. They use current cash and do not produce a deduction for a Roth IRA contribution. A conversion starts with money already inside an eligible retirement account.

The previously untaxed conversion amount is generally included in income. A contribution is not income because it is funded with money already outside the Roth account. Each transaction also has distinct ordering and five-year-rule considerations.

The income limits for direct Roth IRA contributions do not operate as a general ban on conversions. IRS guidance states that a person may be able to convert Traditional IRA amounts regardless of adjusted gross income.

That does not make every related strategy simple. Existing IRA basis, aggregation rules, employer-plan rollovers, transaction sequencing, and current tax law can change the result.

No single “five-year rule” covers every Roth situation. Qualified-distribution rules, conversion amounts, earnings, age, and the timing of each conversion can matter. Treating contributions and conversions as interchangeable can lead to incorrect assumptions about access to money.

A person expecting to withdraw converted funds soon should verify the applicable ordering and additional-tax rules before converting.

Keep annual contribution confirmations, Forms 5498 and 1099-R, Forms 8606, conversion statements, and records of the first Roth IRA contribution year. Custodian labels alone may not preserve every tax fact needed later.