How to Roll Over Your 401(k) Into a Roth IRA

Yes, you can roll over a 401(k) to a Roth IRA, but you will owe income tax on the amount you convert

A Roth conversion lets you move money from your 401(k) into a Roth IRA. The catch: you pay ordinary income tax on whatever you convert in that tax year, as if it were salary. After that, the money grows tax-free and you can withdraw it tax-free in retirement. This trade-off makes sense for some people—especially those in a lower tax bracket now than they expect to be later, or those who want to leave tax-assistance programs to heirs.

You do not need your employer's permission to do this. Once you leave a job or reach age 59½ (in some plans), you can move the money yourself. If you are still working and your plan allows it, you may be able to convert while still employed, though this is less common.

Key Takeaways

• You pay income tax on the full amount you convert, calculated at your ordinary tax rate for that year.
• After conversion, the money grows tax-free and withdrawals in retirement are tax-free, unlike a traditional IRA or 401(k).
• You must have earned income in the year you convert, and the Roth IRA has no income limits for conversions (though direct contributions do).
• A direct rollover from your 401(k) plan to a Roth IRA avoids the 60-day rule and withholding complications that arise with indirect rollovers.
• Converting a large amount in one year can push you into a higher tax bracket, so some people convert gradually over several years.

The tax bill you owe when you convert

The IRS treats a Roth conversion as taxable income in the year you do it. If you convert $50,000, you add $50,000 to your taxable income for that year. Your tax bill depends on your total income and your tax bracket.

Example: You earn $80,000 in salary and convert $30,000 from your 401(k). Your taxable income for the year is $110,000. You pay tax on that $110,000 at whatever rate applies to you—federal, state (if your state has income tax), and possibly Medicare surtax if you are over 55. You do not pay the 10% early withdrawal penalty, even if you are under 59½, because a conversion is not treated as a withdrawal for penalty purposes.

The tax is due when you file your return the following April. You can pay it from the converted funds themselves, but that reduces what ends up in the Roth. Most people pay from other money so the full conversion amount stays invested.

Who can convert and when

You can convert a 401(k) to a Roth IRA at any age, with no income limit. (Direct Roth IRA contributions do have income limits, but conversions do not.) You do need earned income in the year you convert—you cannot convert if you had no income that year.

Timing depends on your employment status. If you have left your job, you can convert immediately. If you are still working, your 401(k) plan must allow in-service distributions for you to convert while employed. Many plans do allow this after age 59½, and some allow it at any age. Check your plan document or ask your HR or benefits administrator whether in-service conversions are permitted.

If you are separated from service (left your job), you can convert regardless of age or plan rules. Some people wait until they leave a job specifically to unlock the ability to convert.

Direct rollover versus indirect rollover

A direct rollover is the simpler path: your 401(k) plan sends the money straight to the Roth IRA custodian (usually a brokerage like Fidelity, Vanguard, or Schwab). You never touch the money. There is no withholding, no 60-day deadline, and no risk of accidentally triggering a taxable event.

An indirect rollover means the plan sends you a check. You then deposit it into the Roth IRA within 60 days. The plan will withhold 20% for federal taxes, so if you convert $50,000, you receive a check for $40,000 and the plan withholds $10,000. You must deposit the full $50,000 into the Roth within 60 days to avoid a taxable event on the $10,000 that was withheld. You can only do one indirect rollover per 12-month period across all your IRAs (this is the IRA rollover rule, separate from 401(k) rules).

Direct rollover avoids all these complications. Request it by name when you contact your plan administrator.

The steps to convert your 401(k)

First, contact your 401(k) plan administrator (usually through your company's HR or benefits department, or the plan custodian's website). Ask whether you are may be able to access to take a distribution. If you have left your job, you are. If you are still employed, ask whether in-service conversions are allowed.

Second, open a Roth IRA if you do not already have one. You can open one at any brokerage—Fidelity, Vanguard, Schwab, or others. You will need to provide your Social Security number and basic personal information.

Third, request a direct rollover from your 401(k) plan to your new Roth IRA. Provide the plan administrator with your Roth IRA custodian's name, your account number at that custodian, and the custodian's routing information. The plan will send the money directly. This usually takes one to two weeks.

Fourth, report the conversion on your tax return. You will receive a Form 1099-R from your 401(k) plan showing the distribution, and a Form 8606 from your Roth IRA custodian. File Form 8606 with your tax return to report the conversion. Your tax preparer or tax software will walk you through this.

What happens if you have pre-tax and after-tax money in your 401(k)

If your 401(k) contains both pre-tax contributions (the money that reduced your taxable income when you contributed it) and after-tax contributions (money you put in with dollars you already paid tax on), the IRS treats a conversion as a proportional mix of both. You cannot cherry-pick only the after-tax portion to convert.

Example: Your 401(k) holds $100,000 pre-tax and $20,000 after-tax, for $120,000 total. If you convert $30,000, the IRS considers it $25,000 pre-tax and $5,000 after-tax. You owe tax on the $25,000 pre-tax portion. This is called the pro-rata rule.

If you have a large after-tax balance and want to avoid this, some plans allow you to roll the pre-tax portion to a traditional IRA and the after-tax portion to a Roth IRA separately. This requires careful coordination with your plan administrator. A tax professional can help you determine whether this strategy makes sense for your situation.

Converting gradually over multiple years

You do not have to convert your entire 401(k) at once. Some people convert a portion each year to spread the tax bill across multiple years and avoid jumping into a higher tax bracket in a single year.

Example: You have a $200,000 401(k) and expect to be in the 24% federal tax bracket this year and next year, but the 32% bracket the year after. You might convert $50,000 this year (paying roughly $12,000 in federal tax) and $50,000 next year, rather than converting $100,000 in one year and paying roughly $32,000.

Each conversion is a separate transaction, and each one generates its own Form 1099-R. You report each on your tax return. There is no limit to how many conversions you can do, or how many years you can spread them across.

Frequently Asked Questions

Do I have to convert my entire 401(k) at once?

No. You can convert part of it now and leave the rest in the 401(k) or roll it to a traditional IRA. Each conversion is separate, and you can do multiple conversions over time.

What if I convert and then the market drops—can I undo it?

Yes, through a process called a recharacterization. You can move the money back to a traditional IRA or 401(k) before your tax return is due (including extensions). This is useful if the account value drops after conversion and you want to avoid paying tax on the higher original amount. You must recharacterize by the tax filing deadline, not the conversion deadline.

Will converting affect my Social Security or Medicare premiums?

Conversion income counts toward your Modified Adjusted Gross Income (MAGI), which can affect Medicare premiums (IRMAA) and the taxation of Social Security benefits. If you are near these thresholds, converting in a year when your income is lower may help. Consult a tax professional if you are close to these limits.

Can I convert if I am still working at the company that sponsors the 401(k)?

Only if your plan allows in-service distributions. Many plans permit this after age 59½, and some at any age. Check your plan document or ask HR. If your plan does not allow it, you must wait until you leave the job.

What if my 401(k) plan does not allow direct rollovers to a Roth IRA?

Some older plans do not support direct Roth conversions. In that case, you can do an indirect rollover to a traditional IRA first, then convert the traditional IRA to a Roth. This takes two steps but achieves the same result. Be aware of the 60-day deadline and the 20% withholding on the indirect rollover.