Clear Money Guide
What this guide covers
A quick view of the questions and evidence developed below.
Updated July 28, 2026. Quick answer: A business loss produces ordinary deductions that need income to absorb. A conversion produces exactly that. Pairing them deliberately can move money into a Roth at a very low or even zero effective rate.
More IRS forms and schedules, read line by line: Form 6198 instructions.
Two halves that fit
A loss year is usually treated as bad news, and a conversion year as expensive. Together they can cancel: the loss absorbs the conversion income, and the converted balance grows tax-free thereafter.
This is one of the few genuinely large planning opportunities that arrives disguised as a problem, and it is routinely missed because nobody is thinking about tax strategy in a year the business lost money.
The interaction is technical: loss limitation rules, basis, at-risk and passive activity rules, and carryforward mechanics all bear on how much of the loss is actually usable this year. This page flags the opportunity; sizing it is a preparer’s job, and the sizing is where the value is.
Get the order right
The conversion has to happen in the same tax year as the usable loss. A loss recognised in December and a conversion in January are two separate years and the match is gone — which makes this a decision that has to be made before year end, not at filing.
Optional next step
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IRC §408A (Roth IRAs); IRC §408A(d)(3); IRC §402(c)(11) (inherited plan amounts); IRC §170 (charitable deduction); IRC §172 (net operating losses); SECURE Act (2019) and final RMD regulations published 19 July 2024. Cross-checked July 2026 against professional analyses. Indexed thresholds, aid formulas and state Medicaid rules are described rather than asserted — they change annually and by state.
This states what the cited authority says. It is not tax advice.
Related
A loss that needs income to absorb it raises an obvious next question: how much income. Enter what you expect this year’s income to be once the loss is accounted for in the Roth conversion bracket calculator, and it returns the room left in your current bracket, the federal cost of filling it, and the cost of each rung above — which is the figure a deliberate pairing turns on.