Personal Finance and Investing

at one's regular aka ordinary tax rate, not the capital gains rate.

So, if one has a $500,000 traditional IRA and converts it to a Roth, one's taxable income increases by $500,000 and it is ALL taxed at one's ordinary tax rate. Every dime of it, all 5 million dimes.

A large amount like this would propel someone into the highest tax bracket, and would pay high tax rates on most of it. But some people don't care, until they do their taxes that is, and then find out this harsh reality.

Edited to add Then there are huge additional stealth taxes on seniors -- a larger part or all of one's Social Security benefit is taxed. And one's Medicare premium will soar if one is above $106,000 in AGI or so (twice that for a married couple). The key word on the additional Medicare premium amounts is "IRMAA". Effectively one's tax bracket becomes sky-high.

Hopefully a large amount is not involved in the OP's case.

I converted my traditional IRA to a Roth in small increments over the course of 2 decades so as not to pay taxes in a higher tax bracket on the conversion amounts.