How to Roll Over a 401(k) to 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 rollover from a 401(k) to a Roth IRA is allowed, but it works differently than rolling over to a traditional IRA. When you move money from a 401(k) into a Roth, the IRS treats it as a conversion. That means you pay income tax on the full amount you convert in the year you do it—even though you are moving money you already earned and may have already paid taxes on.

The conversion itself is straightforward: your 401(k) plan administrator sends the money directly to a Roth IRA you have opened, or you receive a check and deposit it yourself within 60 days. The tax bill comes later, when you file your return. This is different from a rollover to a traditional IRA, where you typically owe no tax at the time of the move.

Whether a Roth conversion makes sense depends on your current tax bracket, how much you are converting, and whether you expect to be in a higher or lower bracket in retirement. A financial advisor or tax professional can help you run the numbers for your situation.

Key Takeaways

• Rolling a 401(k) to a Roth IRA is a taxable conversion, meaning you owe income tax on the full amount in the year you convert it.
• You can roll over a 401(k) directly to a Roth IRA through a direct transfer, or receive the funds and deposit them yourself within 60 days.
• Once money is in a Roth IRA, future earnings grow tax-free and you can withdraw them tax-free in retirement if you meet the account age and age requirements.
• If your 401(k) contains pre-tax contributions, after-tax contributions, and earnings, you may owe tax on a portion of the conversion depending on your other retirement accounts.

Direct transfer versus receiving the check yourself

You have two ways to move the money. A direct transfer (also called a trustee-to-trustee transfer) means your 401(k) plan administrator sends the funds straight to your Roth IRA custodian. No check comes to you, and the IRS does not withhold any tax. This is the cleanest route because there is no risk of missing the 60-day deadline.

The second method is an indirect rollover. Your 401(k) plan sends you a check. You then deposit it into your Roth IRA within 60 days. The catch: your plan administrator is required to withhold 20 percent of the amount for federal income tax. If you convert $50,000, you receive a check for $40,000 and the plan withholds $10,000. You still owe tax on the full $50,000, so if you do not deposit the $10,000 from another source, you will have a shortfall and owe a penalty on the amount not deposited.

Most people choose the direct transfer to avoid the withholding complication and the 60-day clock. Contact your 401(k) plan administrator and ask for the direct rollover form. They will ask for your Roth IRA custodian's name and account number. The transfer usually takes one to two weeks.

The tax bill for converting pre-tax and after-tax money

The tax you owe depends on what kind of money is in your 401(k). If your account holds only pre-tax contributions (the money you deducted from your paycheck before taxes), you owe income tax on the entire amount you convert. If you contributed after-tax dollars—money you put in after paying income tax on it—the tax situation is more complex.

The IRS uses a pro-rata rule that applies if you have multiple retirement accounts. If you have a 401(k) with $100,000 in pre-tax money and $20,000 in after-tax contributions, and you also have a traditional IRA with $80,000 in pre-tax money, the IRS treats all your traditional and SEP IRAs plus the 401(k) as one pool for tax purposes. When you convert $50,000 to a Roth, only a portion of it is treated as after-tax money (and thus not taxed again), and the rest is treated as pre-tax (and thus taxable).

This rule can create an unexpected tax bill. If you are trying to convert only the after-tax portion of your 401(k) to a Roth, the pro-rata rule may force you to include pre-tax money in the conversion and pay tax on it. A tax professional can help you understand whether this rule applies to your accounts and how much tax you will owe.

When you can withdraw the money from your Roth IRA

Once money lands in your Roth IRA, the withdrawal rules depend on whether it is a contribution, a conversion, or earnings. Contributions (money you put in directly) can be withdrawn anytime without tax or penalty. Conversions (money you rolled over from your 401(k)) have a different rule: you must wait five years from the year you did the conversion before you can withdraw the converted amount tax-free.

Earnings on the money in your Roth IRA can be withdrawn tax-free only after you turn 59½ and the account has been open for at least five years. If you withdraw earnings before then, you owe income tax on them plus a 10 percent penalty, with some exceptions (such as a first-time home purchase up to $10,000 lifetime).

The five-year rule for conversions is separate from the five-year rule for the account itself. If you open a Roth IRA in 2024 and convert money to it, the five-year clock starts in 2024. If you open a different Roth IRA in 2025 and convert money to that one, a separate five-year clock starts in 2025 for that conversion. All your Roth IRAs are treated as one account for withdrawal purposes, but each conversion has its own five-year waiting period.

Whether a Roth conversion makes sense for you

A Roth conversion is most useful if you expect to be in a higher tax bracket in retirement than you are now, or if you want to reduce the size of your pre-tax retirement accounts to lower your required minimum distributions (RMDs) later. Converting also lets you move money into an account with no RMDs during your lifetime, which can help with estate planning.

A conversion is usually less attractive if you are currently in a high tax bracket and will be in a lower one in retirement. Paying a large tax bill now to avoid taxes later is a bad trade if your tax rate is dropping. Similarly, if you are close to Medicare enrollment or other income-based benefits, a large conversion could push your income high enough to trigger higher premiums or phase out other benefits.

The math also depends on how long you leave the money in the Roth. If you convert at age 60 and withdraw the money at 65, the five years of tax-free growth may not offset the tax you paid upfront. If you convert at 50 and do not touch the money until 75, the tax-free growth has much more time to compound.

Roth conversions during a market downturn

Some people convert when their 401(k) balance has dropped due to a market decline. If your account was worth $200,000 in January and $160,000 in March, converting in March means you owe tax on $160,000 instead of $200,000. The $40,000 drop in value saves you tax on that amount. This strategy works only if you actually convert during the downturn; waiting for the market to recover defeats the purpose.

The downside is that you are locking in a loss. If the market rebounds and your $160,000 grows back to $200,000 inside the Roth, that $40,000 gain is now tax-free. But if the market continues to fall, you have paid tax on money that is now worth less. This is a timing bet, not a may provide win.

Steps to complete a 401(k) to Roth IRA rollover

Start by opening a Roth IRA with a brokerage or bank if you do not already have one. Fidelity, Vanguard, Charles Schwab, and many other custodians offer Roth IRAs. You will need to provide your name, Social Security number, and address. There is no cost to open the account.

Next, contact your 401(k) plan administrator—usually through your employer's benefits website or by calling the number on your plan statement. Ask for a direct rollover form (sometimes called a distribution request form). Fill it out with your Roth IRA custodian's name and your account number. Some plans let you request this online; others require a paper form.

Submit the form to your plan administrator. They will send the funds directly to your Roth IRA custodian. This typically takes one to three weeks. Once the money arrives, you can invest it in stocks, bonds, mutual funds, or other options offered by your custodian.

Finally, report the conversion on your tax return. You will receive a Form 1099-R from your 401(k) plan showing the amount distributed, and another Form 1099-R from your Roth IRA custodian showing the amount received. When you file your return, you will also file Form 8606 to report the conversion and calculate any tax owed on pre-tax versus after-tax money. A tax professional can help with this step if your situation is complex.

Frequently Asked Questions

Do I have to convert my entire 401(k) balance, or can I convert just part of it?

You can convert any amount you choose, from a small portion to the entire balance. Some people convert in stages over multiple years to spread the tax bill across different tax years. Your plan administrator can process a partial rollover; just specify the amount on the rollover form.

What happens if I miss the 60-day deadline for an indirect rollover?

If you receive a check and do not deposit it within 60 days, the IRS treats it as a distribution, not a rollover. You owe income tax on the full amount plus a 10 percent penalty if you are under 59½. You can request a waiver from the IRS if you have a good reason for the delay, but it is not automatic. A direct transfer avoids this risk entirely.

Can I convert a 401(k) from a previous employer, or only my current employer's plan?

You can convert a 401(k) from any previous employer. Once you leave a job, you can roll that plan to a Roth IRA anytime. You cannot roll over your current employer's 401(k) while you are still employed there, unless your plan allows in-service distributions—ask your plan administrator if yours does.

Will a Roth conversion affect my Social Security benefits or Medicare premiums?

A Roth conversion increases your taxable income in the year you do it, which can trigger higher Medicare premiums if your income exceeds certain thresholds. Social Security benefits are not directly affected, but higher income can cause more of your benefits to be taxed. Run the numbers with a tax professional before converting if you are on Medicare or close to claiming Social Security.

Can I undo a Roth conversion if I change my mind?

You can recharacterize a conversion—meaning you move the money back to a traditional IRA—but only within certain time limits and under specific circumstances. The rules changed in recent years, so ask a tax professional whether recharacterization is an option for your situation. In most cases, once you convert, the tax bill is final.