How to Move Money From a 401(k) to a Roth IRA

You can transfer money from a 401(k) to a Roth IRA, but you will owe income tax on the amount you move

A Roth conversion lets you move pre-tax money from your 401(k) into a Roth IRA. The money grows tax-free in the Roth, and you can withdraw it tax-free in retirement. The catch: you pay ordinary income tax on the full amount you convert in the year you do it, because the IRS treats it as taxable income.

You do not have to convert your entire 401(k) at once. You can convert part of it one year and part another year, which lets you spread the tax bill across multiple tax years. This matters because a large conversion can push you into a higher tax bracket and trigger other tax consequences.

The conversion is different from a rollover. A rollover moves money from one 401(k) to another 401(k) or to a traditional IRA with no immediate tax. A conversion moves money into a Roth and creates a tax event in the year you do it.

Key Takeaways

• You can convert any amount from your 401(k) to a Roth IRA, but you will owe income tax on the full amount converted in that tax year.
• Conversions work best when your income is lower than usual, such as after leaving a job or during a year with little income.
• You can convert part of your 401(k) in one year and the rest in another year to manage your tax bracket and total tax owed.
• Once money is in a Roth IRA, it grows tax-free and you can withdraw earnings tax-free after age 59½, provided the account has been open at least five years.
• If your 401(k) holds both pre-tax and after-tax contributions, the IRS pro-rata rule means you cannot convert only the after-tax portion without paying tax on a share of the pre-tax money.

When you can convert and who can do it

You can convert from a 401(k) to a Roth IRA at almost any time, but the practical moment depends on your employment status. If you still work for the employer sponsoring the 401(k), you may need to wait until you leave the job, retire, or reach age 59½. Check your plan's rules—some plans allow in-service conversions while you are still employed, but most do not.

Once you leave the job, you can convert immediately. You do not have to wait for retirement. This is one reason people convert after changing jobs: their income may be lower during the transition, which means a smaller tax bill on the conversion.

There is no income limit on who can convert. Unlike Roth IRA contributions, which have income limits that phase out at higher earnings, conversions are open to anyone regardless of how much you earn. This is why high-income earners often use conversions as a backdoor way to fund a Roth IRA.

How the tax bill works and what you owe

The IRS taxes a conversion as ordinary income in the year you make it. If you convert $50,000, you add $50,000 to your taxable income for that year. Your tax bracket determines how much you actually owe—if you are in the 24% bracket, you will owe roughly $12,000 in federal tax on a $50,000 conversion (state tax may apply too).

The tax is due when you file your return for that year. You do not pay it upfront to the IRS; you settle it on your tax return. However, you can pay the tax from your own funds or have the financial institution withhold it from the conversion amount. If you have the institution withhold tax, less money ends up in the Roth, but you avoid having to write a check to the IRS later.

A key rule called the pro-rata rule affects conversions if your 401(k) holds both pre-tax and after-tax money. The IRS treats all your pre-tax and after-tax 401(k) balances as one pool. If you convert $50,000 and your total 401(k) balance is $100,000 (with $80,000 pre-tax and $20,000 after-tax), the IRS says 80% of your conversion is taxable. You cannot cherry-pick only the after-tax portion to avoid tax.

The steps to move money from your 401(k) to a Roth IRA

First, open a Roth IRA with a financial institution if you do not already have one. You can use the same bank or brokerage as your 401(k), or choose a different one. There is no requirement to keep them together.

Next, contact your 401(k) plan administrator or the financial institution holding your 401(k). Tell them you want to do a conversion to a Roth IRA. They will give you a form to complete. The form asks for the amount you want to convert and the Roth IRA account details where the money should go.

The administrator processes the conversion and sends the money directly to your Roth IRA. This is called a trustee-to-trustee transfer, and it is the cleanest method because the money never passes through your hands. If the money goes to you first, the IRS may treat it as a distribution and apply the 60-day rollover rule, which can create tax problems.

After the transfer completes, the plan administrator sends you a Form 1099-R showing the conversion. You report this on your tax return when you file. If you had tax withheld from the conversion, that withholding is credited against your tax bill for the year.

Timing conversions to minimize your tax bill

The year you convert matters because it determines your tax bracket for that year. If you convert in a year when your income is unusually low—such as the year you leave your job mid-year, take unpaid leave, or retire—your tax bracket will be lower, and you will owe less tax on the conversion.

Some people convert in the year they retire, before they start taking Social Security or pension payments. Others convert over several years, converting a smaller amount each year to stay in a lower bracket. A financial advisor or tax professional can model different conversion amounts and years to show you the tax impact.

You can also use a conversion to offset other losses. If you have investment losses or business losses in a given year, those losses reduce your taxable income. A conversion in that same year will be taxed at a lower effective rate because your overall income is lower.

What happens to the money after conversion

Once the money lands in your Roth IRA, it grows tax-free. You do not pay tax on dividends, interest, or capital gains inside the Roth. This is the main benefit of converting: you pay tax once, upfront, and then all future growth is tax-free.

You can withdraw your contributions (the money you converted) at any time without tax or penalty. However, you cannot withdraw the earnings—the growth on that money—until you are at least 59½ years old and the Roth IRA has been open for at least five years. If you withdraw earnings before then, you owe tax on them plus a 10% penalty.

The five-year rule applies to each conversion separately. If you convert in 2024 and again in 2026, each conversion has its own five-year clock. You can withdraw the 2024 conversion's earnings penalty-free starting in 2029, and the 2026 conversion's earnings starting in 2031.

Conversions and the Medicare premium surcharge

A large conversion can affect your Medicare premiums if you are on Medicare or will be soon. Medicare uses your income from two years prior to set your premiums. A conversion increases your income in that year, which can trigger higher premiums two years later.

This is called the Income-Related Monthly Adjustment Amount (IRMAA). If your income crosses certain thresholds, your Medicare Part B and Part D premiums jump. The thresholds vary by filing status and change each year. If you are approaching Medicare age, ask your tax advisor whether a conversion will push you into a higher premium bracket.

Frequently Asked Questions

Can I convert my 401(k) while I am still working?

It depends on your plan. Most plans do not allow conversions while you are employed. Once you leave the job, you can convert immediately. Some plans offer in-service conversions, but you must check your plan document or ask your HR department to know for sure.

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 your 401(k) or to a traditional IRA by the tax-filing deadline (including extensions) for the year you converted. If you recharacterize, the conversion is treated as if it never happened, and you do not owe tax on it. However, you must recharacterize the full amount; you cannot cherry-pick which gains to undo.

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

No. You can convert any amount, from a small portion to the entire balance. Converting over multiple years lets you spread the tax bill and stay in a lower tax bracket each year. Many people convert $20,000 to $50,000 per year depending on their income and tax situation.

What happens if my 401(k) has company stock in it?

Company stock can be converted like any other 401(k) asset. However, there is a special rule called Net Unrealized Appreciation (NUA) that may let you pay tax only on the cost basis of the stock, not its current value, if you take it as a distribution instead of converting it. This is complex and requires a tax professional to evaluate whether it saves you money.

Can I convert a 401(k) from a previous employer?

Yes. Once you leave a job, you own that 401(k) and can convert it to a Roth IRA. You do not have to wait any period of time. Contact the plan administrator for the old 401(k) and request a conversion to your Roth IRA account.