Clear Money Guide
What this state guide covers
A quick view of the questions, practical details and source notes below.
Updated August 12, 2026. Quick answer: Yes. Alabama taxes the taxable portion of a Roth conversion as ordinary income at its 2%-5% rates, and its own Form 40 instructions say so by name — they direct a traditional-to-Roth conversion onto Schedule RS. The only offset is the retirement-income exemption of up to $6,000, and a converter must be 65 or older to claim it.
Confidence note: high. Alabama’s own Form 40 instructions address a traditional-to-Roth conversion explicitly, so this is not an inference from the general retirement exclusion.
Why a conversion is a different question from a withdrawal
Almost every state summary answers “how does Alabama tax retirement income?” That is a question about distributions. A Roth conversion is not a distribution in the ordinary sense — it is a voluntary election to recognise income now in exchange for tax-free growth later. Whether a state’s retirement exclusion reaches that election is a separate question, and it is the one that decides your bill.
There is an exemption here, but it is small and age-gated: $6,000 of taxable retirement distributions from age 65, not a general shelter for retirement income. Because Alabama’s return instructions name the conversion and send it to Schedule RS, the question is not whether it is taxable but how much of the $6,000 your other retirement income has already used.
Because the state cost is certain, the lever that matters in Alabama is when and how much — splitting a conversion across tax years, or converting in a year of unusually low income, changes the bill more than the $6,000 exemption can.
What Alabama does with the converted amount
State income tax: graduated to 5% (3 brackets: 2%/4%/5%)
How Alabama treats IRA and plan income: Defined-benefit pension income fully exempt (public and private, IRC 414(j) plans). 401(k)/IRA and other defined-contribution distributions taxable, except taxpayers 65+ may exempt the first $6,000 of taxable retirement distributions (Lynn Greer Retirement Income Tax Cut Act, Act 2022-294, effective 2023). The widely reported increase to $12,000 for 2026 did not happen: HB388 (2025) passed the House 103–0 but died in the Senate when the Legislature adjourned May 14, 2025, and the 2026 session enacted no replacement, so the exemption stays $6,000 per taxpayer.
What to ask a preparer about Alabama
None on eligibility — the Form 40 instructions make it taxable. Ask instead how much of the $6,000 exemption is left after your other retirement income, and how splitting the conversion across two tax years changes the bracket outcome.
Converting around a move
Converting in the year you move into Alabama is the case that catches people. Residency at the moment of conversion is what generally determines which state gets to tax it, so a conversion executed a week before a move and one executed a week after can produce different bills.
Four separate taxes change when you move, not one: income tax on withdrawals, treatment of Social Security, estate tax, and inheritance tax. A state that looks good on conversions can be worse on the other three.
The state bill is the smaller half
Whatever Alabama does, the conversion is federal ordinary income first. The federal bracket you land in, and whether the conversion pushes you over an IRMAA threshold two years later, will usually move more money than the state line does. The state answer tells you whether to convert here; the federal answer tells you how much to convert at once.
Paying the tax from outside the account matters more than either. Using converted dollars to pay the bill shrinks the balance that was the entire point of converting.
Sources
Authority: Ala. Code § 40-18-19; Act 2022-294 (Lynn Greer Retirement Income Tax Cut Act of 2022); ADOR: Income Exempt from Alabama Income Taxation.
Compiled from state statutes, session laws and revenue-department publications and adversarially verified in July 2026. Dataset confidence for Alabama: high on structure/rates/SS/DB/military; the 65+ exemption is $6.
This page states what the cited authority says. It is not tax advice, and a conversion large enough to matter is worth putting in front of a preparer who can see your whole return.