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

A Roth conversion lets you move money from a 401(k) into a Roth IRA. The catch is that the IRS treats the money you move as income in that tax year, so you will owe federal income tax on the full amount you convert. You do not have to convert your entire 401(k) at once — you can move part of it and leave the rest where it is, or roll it to a traditional IRA instead.

The main reason people do this is to lock in lower tax rates now and avoid larger required withdrawals later. Once money is in a Roth IRA, you never have to take withdrawals during your lifetime, and withdrawals in retirement are tax-free. A traditional 401(k) requires you to start taking mandatory withdrawals at age 73, and those withdrawals are taxed as ordinary income.

You can only do a Roth conversion if your 401(k) plan allows it. Not all plans do. You will need to contact your plan administrator — usually the HR or benefits department at your former employer — and ask whether in-service conversions or distributions for conversion are permitted.

Key Takeaways

  • A Roth conversion moves 401(k) money into a Roth IRA, but you owe income tax on the amount converted in that tax year.
  • You do not need to convert your entire 401(k) at once; you can convert part of it and leave the rest in the 401(k) or roll it to a traditional IRA.
  • Your 401(k) plan must permit conversions, so you need to check with your plan administrator before you start.
  • Roth conversions make the most sense when you expect to be in a higher tax bracket in retirement or want to avoid required withdrawals later.

How the conversion process works

There are two main ways to move money from a 401(k) to a Roth IRA: a direct rollover or a distribution that you then convert yourself.

In a direct rollover, your 401(k) plan sends the money straight to the Roth IRA custodian (the bank or brokerage holding your Roth account). You never touch the money. This is the cleanest route because there is no 60-day window and no risk of accidentally triggering a tax penalty. Ask your 401(k) plan administrator to process a direct rollover to your Roth IRA and provide the Roth custodian's account and routing information.

In a distribution for conversion, the 401(k) plan sends you a check or deposits the money into your bank account. You then deposit it into your Roth IRA yourself within 60 days. The IRS allows one rollover per 12-month period using this method, so if you have multiple 401(k)s or IRAs, you need to track your timing carefully. If you miss the 60-day window, the money is treated as a withdrawal and you owe income tax plus a 10 percent early withdrawal penalty if you are under 59½.

Understanding the tax bill

When you convert, the IRS counts the money as ordinary income for that tax year. If you convert $50,000, you add $50,000 to your taxable income. Depending on your other income and your tax bracket, this could push you into a higher bracket or trigger other tax consequences.

Some conversions also trigger the pro-rata rule. If you have money in a traditional IRA, SEP IRA, or straightforward IRA in addition to your 401(k), the IRS treats all your pre-tax IRA money as one pool when you convert. You cannot convert only the after-tax portion and leave the pre-tax portion behind. The IRS will calculate what percentage of your total IRA balance is pre-tax and explore that percentage to your conversion. This can create a larger tax bill than you expected.

For example: if you have $100,000 in a traditional IRA and $50,000 in after-tax contributions in a SEP IRA, and you want to convert the $50,000 after-tax amount, the pro-rata rule says only $33,333 of your conversion is after-tax (one-third of the total). The other $16,667 is treated as pre-tax income and you owe tax on it.

When you can do a conversion and when you cannot

You can convert a 401(k) to a Roth IRA at any age and at any income level. Unlike traditional IRA contributions, Roth conversions have no income limits. This is why conversions are popular for high-income earners who are barred from contributing directly to a Roth.

However, your 401(k) plan must allow it. Some plans permit conversions only after you leave the company. Others allow in-service conversions while you are still employed. A few plans do not allow conversions at all. Contact your plan administrator to find out what your plan permits.

If you are still employed and your plan does not allow in-service conversions, you have two options: wait until you leave the job, or roll the 401(k) to a traditional IRA first and then convert the IRA to a Roth. Rolling to a traditional IRA is always permitted, and you can convert a traditional IRA to a Roth at any time.

Timing the conversion to manage your tax bill

The year you convert matters because the tax bill lands in that year. Many people convert in years when their income is lower than usual — for example, the year they retire before Social Security starts, or a year when they had a job loss or sabbatical.

You can also split a conversion across multiple years. If you have $100,000 to convert, you could convert $25,000 each year for four years. This spreads the tax bill and may keep you in a lower bracket each year than if you converted the whole amount at once.

Some people convert in December and then undo the conversion (called a recharacterization) if the market drops and the value falls before year-end. However, recharacterizations are no longer permitted for conversions done after 2017, so you cannot use this strategy anymore. Once you convert, the conversion is final for that tax year.

What happens to employer matching and loans

If your 401(k) contains employer matching contributions, those are pre-tax dollars and subject to the pro-rata rule when you convert. You cannot separate them out and convert only your own contributions.

If you have an outstanding 401(k) loan, you cannot convert the borrowed amount. The loan balance stays as a loan. If you leave the company before repaying the loan, the unpaid balance is treated as a taxable distribution and you may owe a 10 percent penalty if you are under 59½. Repay any loans before you convert or leave the job.

After the conversion: what your Roth IRA looks like

Once the money lands in your Roth IRA, it grows tax-free. You can withdraw your contributions (the original amount you put in) at any time without tax or penalty. You cannot withdraw the earnings (growth) until you are 59½ and have held the Roth for at least five tax years.

Unlike a traditional 401(k) or traditional IRA, a Roth IRA has no required minimum distributions during your lifetime. This means you can leave the money untouched and pass it to heirs, or withdraw only what you need. Heirs who inherit a Roth IRA do have to take distributions, but those distributions are tax-free.

You can continue to contribute to your Roth IRA in future years if your income is below the contribution limit threshold. The conversion does not affect your ability to make regular contributions, though income limits do explore to direct contributions.

Frequently Asked Questions

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

No. You can convert part of your 401(k) and leave the rest in place, or roll the rest to a traditional IRA. Partial conversions are common when people want to spread the tax bill across multiple years or convert only the after-tax portion of their balance.

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

No, not anymore. Before 2018, you could recharacterize a conversion and undo it if the value fell. That option ended for conversions after December 31, 2017. Once you convert, it is final for that tax year.

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

Only if your plan permits in-service conversions. Some plans allow them, others do not. Ask your HR or benefits department. If your plan does not allow it, you can wait until you leave the job, or roll the 401(k) to a traditional IRA first and convert the IRA to a Roth.

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

Yes, possibly. The conversion counts as income for that year, which can increase your modified adjusted gross income (MAGI). A higher MAGI can trigger higher Medicare Part B and Part D premiums. It can also affect how much of your Social Security is taxed. Consider these effects when deciding whether and when to convert.

What if I have a traditional IRA — does that affect my conversion?

Yes, the pro-rata rule applies. The IRS treats all your pre-tax IRA money (traditional, SEP, and straightforward IRAs) as one pool. If you have both pre-tax and after-tax money across these accounts, a portion of your conversion will be taxable even if you are converting only after-tax contributions. Consult a tax professional to calculate the exact amount.