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

By Felix Thorpe · Retirement Accounts Writer

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

A rollover from a 401(k) to a Roth IRA moves money from your employer plan into an individual retirement account with different tax treatment. The key difference: a traditional 401(k) holds pre-tax dollars, while a Roth IRA holds after-tax dollars. When you move the money, you must pay income tax on the full amount you convert—as if you had withdrawn it that year. After you pay the tax, the money grows tax-free in the Roth IRA, and you can withdraw earnings without tax after age 59½ and once the account has been open at least five years.

This is called a Roth conversion, and it is permanent. You cannot undo it or move the money back to a 401(k). The decision to convert should account for your current tax bracket, your expected tax bracket in retirement, and whether you have cash outside the account to pay the tax bill.

Key Takeaways

  • You pay ordinary income tax on the full amount you convert in the year you do it, so a large conversion can push you into a higher tax bracket.
  • You can only roll over a 401(k) to a Roth IRA if your plan allows it or if you have already left your employer; some plans do not permit in-service conversions.
  • The conversion must go directly from your 401(k) plan to the Roth IRA (a trustee-to-trustee transfer) to avoid a 60-day deadline and withholding penalties.
  • After conversion, the money must stay in the Roth IRA for five tax years before you can withdraw earnings tax-free, even if you are over 59½.
  • If you have other IRAs or SEP-IRAs, the IRS counts all of them together when calculating the tax on your conversion—you cannot isolate pre-tax and after-tax money.

When your 401(k) plan allows in-service conversions

Some employers allow you to convert part or all of your 401(k) balance to a Roth IRA while you are still working and enrolled in the plan. This is called an in-service Roth conversion. Your plan documents will state whether this is permitted; your HR or benefits department can tell you in one call.

If your plan does allow it, you typically initiate the conversion through your plan administrator or the investment company that holds your 401(k) (Fidelity, Vanguard, Schwab, or your employer's chosen provider). You will name the Roth IRA as the receiving account, and the plan administrator will send the money directly to that IRA. You then report the conversion on your tax return for that year and pay tax on the amount converted.

If your plan does not allow in-service conversions, you must wait until you leave your job or reach age 59½ (some plans allow conversions at 59½ even while employed). Once you separate from the employer, you can roll the entire 401(k) balance to a Roth IRA without restriction.

How the direct rollover process works

The safest way to convert is a trustee-to-trustee transfer, where your 401(k) plan administrator sends the money directly to your Roth IRA custodian (the bank or brokerage holding your Roth). You never touch the money. This avoids the 60-day rollover deadline and automatic withholding that can create tax problems.

Here is the typical sequence: (1) You contact your 401(k) plan administrator and request a direct rollover to a Roth IRA. (2) You provide the name and account number of your Roth IRA and its custodian. (3) The plan administrator initiates the transfer and sends the funds directly to the Roth IRA custodian. (4) The custodian deposits the money into your Roth account. (5) You receive a 1099-R form from the plan showing the conversion amount, which you report on your tax return.

Do not ask the plan to send you a check to deposit yourself. If you receive the money in your hands, the IRS treats it as a distribution subject to the 60-day rollover rule: you have 60 days to deposit it into a Roth IRA or it becomes taxable income plus a 10% early withdrawal penalty (if you are under 59½). The plan will also withhold 20% for federal income tax, meaning you would need to cover that 20% from another source to deposit the full amount within 60 days.

Calculating the tax you will owe

When you convert a 401(k) to a Roth IRA, the IRS taxes the full amount as ordinary income in the year of conversion. If you convert $50,000, you add $50,000 to your taxable income for that year. The tax you owe depends on your tax bracket and your other income.

Example: You earn $75,000 in salary and convert $30,000 from your 401(k) to a Roth IRA. Your taxable income for the year is $105,000. If you file as single, that $30,000 conversion is taxed at your marginal rate (the rate applied to your highest income). If your tax bracket jumps from 22% to 24% because of the conversion, you will owe approximately $7,200 in federal tax on the conversion alone, plus any state income tax.

You should pay this tax from money outside the conversion account—from your paycheck, savings, or other sources. If you use money from the 401(k) or Roth IRA to pay the tax, you reduce the amount that grows tax-free and may trigger additional penalties.

If you have a traditional IRA, SEP-IRA, or SIMPLE IRA in addition to your 401(k), the IRS applies the pro-rata rule. This rule counts the total balance across all your IRAs and non-Roth accounts, then calculates what percentage is pre-tax and what percentage is after-tax. You cannot convert only the after-tax portion and leave the pre-tax portion behind. This can make conversions more expensive if you have a large traditional IRA balance.

The five-year holding period for Roth conversions

After you convert, the money must remain in the Roth IRA for at least five tax years before you can withdraw the earnings tax-free. This is separate from the age 59½ rule. Even if you are 65 years old, if your Roth conversion is only three years old, you cannot withdraw the earnings without tax and penalty.

The five-year period starts on January 1 of the year you do the conversion. If you convert on December 31, 2024, the five-year clock starts January 1, 2024, and you can withdraw earnings tax-free starting January 1, 2029. If you convert again in 2025, that conversion has its own separate five-year period.

The contribution portion of your conversion (the amount you actually converted) can be withdrawn anytime without tax or penalty, even before five years pass. Only the earnings are subject to the five-year rule. This distinction matters if your conversion grows significantly before you need the money.

Income limits and who can convert

Unlike direct contributions to a Roth IRA, there are no income limits on Roth conversions. Anyone can convert a 401(k) to a Roth IRA regardless of how much they earn. This is why conversions are popular for high-income earners who cannot contribute directly to a Roth because their income exceeds the limit.

However, the conversion itself increases your taxable income for the year, which can affect other tax benefits. A large conversion might reduce or eliminate your ability to claim the child tax credit, education credits, or the saver's credit. It can also increase the taxable portion of your Social Security benefits if you are receiving them. Run the numbers with a tax professional before converting a large amount.

Reasons to convert and reasons to wait

A conversion makes sense if you expect to be in a higher tax bracket in retirement than you are now, or if you want to leave tax-assistance programs to heirs. It also makes sense in a year when your income is unusually low—a job loss, sabbatical, or gap between jobs—because the conversion will be taxed at a lower rate.

Conversions are less attractive if you are in a high tax bracket now and expect to be in a lower bracket in retirement. They are also risky if you do not have cash outside the account to pay the tax bill, because using the converted money to pay taxes defeats the purpose of the conversion.

Some people convert gradually over several years to spread the tax hit across multiple years and avoid a single large spike in taxable income. Others wait until they retire and their income drops. There is no single right answer; it depends on your specific situation and tax outlook.

Frequently Asked Questions

What happens if I do not have the cash to pay the tax on the conversion?

You should not convert if you cannot pay the tax from outside sources. If you use the converted money to pay the tax, you lose that amount from your retirement savings and may owe an additional 10% early withdrawal penalty if you are under 59½. The conversion becomes counterproductive.

Can I convert only part of my 401(k)?

Yes. If your plan allows in-service conversions, you can convert a portion of your balance and leave the rest in the 401(k). This lets you spread the tax impact over time or convert only the amount you can afford to pay tax on. Your plan administrator can process a partial conversion.

What if I change my mind after converting?

You cannot undo a Roth conversion or move the money back to a 401(k). Once the money is in the Roth IRA, it stays there. You can move it to a different Roth IRA custodian, but you cannot reverse the conversion itself. Plan carefully before you commit.

Do I have to convert my entire 401(k) when I leave my job?

No. When you separate from your employer, you can roll the entire 401(k) to a traditional IRA (no tax), convert part of it to a Roth IRA (tax on the amount converted), or leave it in the old plan if the balance is above your employer's minimum. You choose which option fits your situation.

Will a Roth conversion affect my Medicare premiums?

Yes, potentially. Medicare premiums are based on your modified adjusted gross income from two years prior. A large conversion can increase that income and trigger higher premiums. If you are approaching Medicare age, factor this into your conversion decision.