Converting Your 401k to a Roth IRA: What You Need to Know

Yes, you can roll a 401k into a Roth IRA, but you'll owe taxes on the money you convert

A Roth conversion lets you move money from your 401k into a Roth IRA. The catch is that you must pay income tax on the full amount you convert in the year you do it. If your 401k holds $50,000 and you convert all of it, you'll owe taxes on that $50,000 as if it were regular income that year. After you pay the tax, the money sits in the Roth IRA tax-free, and you can withdraw it tax-free in retirement.

Whether a conversion makes sense depends on your current tax bracket, when you plan to retire, and how much money you have in the 401k. Some people convert in years when their income is lower. Others convert gradually over several years to spread out the tax bill. You don't have to convert everything at once.

Key Takeaways

You can convert a 401k to a Roth IRA at any time, but you pay income tax on the full amount converted in that tax year.
After the conversion, the money grows tax-free in the Roth IRA and you can withdraw it tax-free in retirement, unlike a traditional 401k.
There is no income limit for Roth conversions, even if you earn too much to contribute to a Roth IRA directly.
You can convert only after you leave your job or reach age 59½, depending on your plan's rules.
Partial conversions are allowed — you can convert some money now and leave the rest in your 401k.

When you can convert your 401k to a Roth IRA

The timing depends on your employment status and your 401k plan's rules. If you've left your job, you can convert your old 401k to a Roth IRA at any time. If you still work for the company that sponsors your 401k, most plans do not allow conversions while you're employed there — but some do. Check with your plan administrator to see if your plan permits in-service conversions.

Once you turn 59½, some plans allow you to convert even while you're still working. At age 73, you must begin taking required minimum distributions from your 401k, and you cannot convert money that is part of that required distribution.

If you have a 401k from a previous employer, you don't need to wait for anything — you can convert it to a Roth IRA right away.

How the tax bill works

When you convert, the IRS treats the converted amount as taxable income for that year. If you convert $30,000, you add $30,000 to your taxable income. This can push you into a higher tax bracket, which means you may pay more tax on that conversion than you would on the same amount of ordinary income.

You owe the tax in the year of the conversion, whether or not you withdraw the money from the Roth IRA to pay it. Many people pay the tax from a separate savings account or checking account so they don't have to withdraw from the Roth IRA itself. If you withdraw from the Roth IRA to cover the tax bill, that withdrawal counts as a separate transaction and may trigger additional taxes or penalties.

The tax you owe depends on your total income that year, your filing status, and your state's tax rules. A tax professional can estimate your bill before you convert, which helps you decide whether to convert in full or in pieces over multiple years.

The difference between converting and rolling over

A rollover and a conversion are different moves. A rollover moves money from one 401k to another 401k, or from a 401k to a traditional IRA — no taxes owed. A conversion moves money from a 401k (or traditional IRA) to a Roth IRA, and you pay taxes on it.

If you want to move your 401k to an IRA but avoid taxes for now, a rollover to a traditional IRA is the path. If you want the money to grow tax-free and withdraw it tax-free later, a Roth conversion is what you need — but you pay the tax upfront.

Income limits and the pro-rata rule

There is no income limit for Roth conversions. Even if you earn too much to contribute to a Roth IRA directly, you can convert a 401k to a Roth IRA. This is one reason high earners use conversions to build Roth savings.

However, if you have money in a traditional IRA, SEP IRA, or straightforward IRA in addition to your 401k, the pro-rata rule may explore. This rule says that when you convert, the IRS treats your conversion as coming from a mix of pre-tax and after-tax money across all your traditional IRAs. This can increase your tax bill. If you have multiple IRAs, talk to a tax professional before converting — they can help you structure the conversion to minimize taxes.

Steps to convert your 401k to a Roth IRA

First, open a Roth IRA with a bank or brokerage if you don't already have one. You'll need to choose where to hold the Roth IRA — the same institution as your 401k, or a different one.

Next, contact your 401k plan administrator and ask for a direct rollover to a Roth IRA. Provide them with the Roth IRA account details. A direct rollover means the money moves from the 401k trustee straight to the Roth IRA trustee, which is the cleanest method.

The plan administrator will send you a form to sign. Some plans require you to specify the amount you want to convert. After you sign, the money typically moves within one to two weeks. Your plan will send you a 1099-R tax form in January showing the conversion amount, which you'll report on your tax return.

If you receive the check yourself instead of having it sent directly to the Roth IRA, you have 60 days to deposit it into the Roth IRA. If you miss that important date, the IRS treats it as a withdrawal, and you'll owe taxes and possibly penalties.

Roth conversion vs. staying in your 401k

The main trade-off is taxes now versus taxes later. In a 401k, you don't pay tax until you withdraw in retirement. In a Roth IRA, you pay tax when you convert, but then all future growth and withdrawals are tax-free.

A conversion makes more sense if you expect to be in a higher tax bracket in retirement, or if you want to leave money to heirs (Roth IRAs have tax advantages for beneficiaries). It makes less sense if you're in a very high tax bracket right now and expect to be in a lower one in retirement.

A 401k also has higher contribution limits than an IRA, and some 401k plans offer loans, which IRAs do not. If you need access to your money before retirement, a 401k loan might be an option, whereas a Roth IRA withdrawal before age 59½ may trigger penalties.

Frequently Asked Questions

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

No. You can convert part of your 401k and leave the rest where it is. Many people convert in chunks over several years to spread out the tax bill and stay in a lower tax bracket each year.

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

You used to be able to reverse a conversion (called a recharacterization), but that option ended in 2018. Once you convert, the conversion is final for tax purposes. Plan carefully before you convert, or talk to a tax professional beforehand.

What happens to my 401k loan if I convert?

You cannot convert a 401k that has an outstanding loan. You must repay the loan first. If you leave your job with an unpaid loan, the balance is usually treated as a taxable withdrawal.

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

Yes, it can. A conversion increases your taxable income for that year, which may affect your Medicare premiums (IRMAA) and the taxation of your Social Security benefits. If you're near retirement, check with a tax professional before converting.

Can I convert my employer's 401k match?

Yes. Employer contributions are treated the same as your own contributions for conversion purposes. The entire amount, including the match, is subject to income tax when you convert.

This guide is for general information only and is not medical, financial, legal, or other professional advice. For decisions specific to your situation, consult a qualified professional. See our Editorial Policy.