How a Roth Conversion Gets Taxed in NY

A Roth conversion takes pre-tax retirement money and moves it into a Roth IRA, where future growth and withdrawals are tax-free. The catch: the converted amount counts as ordinary income in the year you do it.

For a New York City resident converting $100,000 from a traditional IRA, the tax bill looks roughly like this:

• Federal income tax: $22,000 to $37,000 depending on your other income and bracket
• New York State income tax: $6,800 to $10,900 at the applicable marginal rate
• NYC income tax: $3,078 to $3,876

Total tax on a $100,000 conversion for a high-income NYC resident can exceed $50,000. That’s half the conversion eaten by taxes before the Roth account even starts growing.

The “Move First, Convert Later” Strategy

This is the conversation we have most frequently with clients planning to leave New York. If you’re relocating to a no-income-tax state like Florida, Texas, or Tennessee, waiting to convert until after you’ve established residency there saves you the entire state and city tax portion.

On a $500,000 conversion, the difference between converting in NYC versus converting after moving to Florida is roughly $55,000 to $74,000 in state and city taxes you don’t have to pay. That’s not a rounding error — it’s a down payment on a house.

But the timing has to be clean. New York is aggressive about establishing when you actually left. The state looks at where your driver’s license is, where your doctors and dentists are, where you vote, and where you spend more than 183 days. Converting your IRA on January 2 while your family is still living in a Westchester house until June is a recipe for an audit.

When Converting in New York Still Makes Sense

Not everyone can move, and not everyone should wait. Here are the scenarios where converting while still in NY is worth the tax hit:

A low-income year. If you’re between jobs, took a sabbatical, or had a business loss, your taxable income may be unusually low. Converting just enough to fill up the lower federal and state brackets can be efficient even with NY taxes.

You have a large traditional IRA and plan to stay in NY for retirement. New York taxes IRA distributions the same way it taxes conversion income. If you’re going to pay NY taxes on the money eventually, converting now locks in today’s rates and lets the Roth grow tax-free. This is especially true if you expect your income (and bracket) to be higher in retirement than it is right now.

You’re concerned about future federal tax rates. The 2017 Tax Cuts and Jobs Act rates are set to expire after 2025 unless Congress extends them. If rates go up, conversions done at today’s lower brackets look like a bargain in hindsight — even after paying NY’s share.

Partial Conversions: The Bracket-Filling Approach

Most CPAs don’t recommend converting everything at once. The smarter play is converting just enough each year to fill up your current tax bracket without pushing yourself into the next one.

Say you’re a married couple in NYC with $200,000 in taxable income. The 24% federal bracket ends at $383,900 for 2025 married filing jointly. You could convert up to roughly $183,900 and stay in the 24% bracket federally. But you’d also be pushing your NY State income up, potentially hitting the 10.9% bracket.

Running the numbers with your CPA before year-end is the only way to do this right. The goal is to find the sweet spot where the tax cost of conversion today is lower than the tax cost of distributions later.

What About the Five-Year Rule?

Roth conversions have their own five-year clock under IRC Section 408A. Each conversion starts a separate five-year waiting period before you can withdraw the converted amount penalty-free (if you’re under 59 1/2). The earnings in the Roth follow a different five-year rule tied to when you opened your first Roth IRA.

For most New York professionals doing conversions in their 40s and 50s, this isn’t a practical concern — the money is going to sit in the Roth for decades. But if you’re converting with plans to access the money before 59 1/2, map out the five-year windows carefully.

Estimated Tax Payments After a Conversion

A Roth conversion doesn’t come with withholding unless you specifically ask for it (and you generally shouldn’t — withholding from the IRA itself reduces the amount that gets converted). That means you’ll owe a large lump sum when you file, or you need to make estimated payments.

As a New York filer, you’re making estimated payments to three entities: the IRS (Form 1040-ES), New York State (Form IT-2105), and potentially NYC. Miss a quarterly payment and you’ll face underpayment penalties from each one separately. If you convert late in the year — say November or December — talk to your CPA about whether a Q4 estimated payment or an extension-period payment is the better route.

Sources & References

• IRS — Roth IRAs
• 26 U.S.C. § 408A — Roth IRAs (Cornell Law)
• NY Dept. of Taxation — Income Tax Rate Tables
• NY Dept. of Taxation — Nonresident and Part-Year Resident Information
• IRS — 2025 Tax Bracket Adjustments