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

A Roth conversion lets you move money from your 401(k) into a Roth IRA. The Roth grows tax-free from that point forward, and you can withdraw earnings penalty-free after age 59½ if the account has been open at least five years. The catch: you pay ordinary income tax on the full amount you convert in the year you do it, calculated as if that money were added to your regular income for that year.

This is different from a regular 401(k)-to-IRA rollover, where you move pre-tax money to a traditional IRA and pay no tax at conversion time. A Roth conversion is a deliberate choice to pay tax now in exchange for tax-free growth later. Whether it makes sense depends on your current tax bracket, how long you plan to hold the money, and whether you have the cash on hand to pay the tax bill without touching the rollover itself.

Key Takeaways

  • You can roll over a 401(k) to a Roth IRA at any age, but you will owe income tax on the entire converted amount in the year you do it.
  • The tax bill is calculated based on your total income that year, so a large conversion can push you into a higher tax bracket.
  • You must have left your employer or meet your plan's in-service withdrawal rules to roll over an active 401(k); some plans allow in-service Roth conversions without leaving.
  • The five-year rule applies separately to each Roth conversion, meaning money converted in 2024 cannot be withdrawn penalty-free until 2029.
  • You can convert a 401(k) to a Roth IRA regardless of your income level, unlike direct Roth IRA contributions which have income limits.

When you can roll over your 401(k) to a Roth IRA

The timing depends on your employment status. If you have left your job, you can roll over your 401(k) balance to a Roth IRA at any time. Your former employer's plan administrator will send you the money (or direct it to the Roth IRA custodian), and you report the conversion on your tax return that year.

If you are still employed and the money is in your current employer's 401(k), you have two options. First, some plans allow in-service Roth conversions, meaning you can convert part or all of your balance without leaving the job. Check your plan documents or ask your benefits administrator whether this is available. Second, you can wait until you leave the company, retire, or reach age 59½ (when many plans allow withdrawals). At that point, you can roll the balance to a Roth IRA.

A few plans also allow conversions at age 50 or older, but this varies by employer. The only way to know what your plan permits is to contact your plan administrator directly — the rules are set by your employer, not by the IRS.

How the tax bill works when you convert

When you convert $50,000 from your 401(k) to a Roth IRA, the IRS treats that $50,000 as income you received that year. If your salary is $80,000, your taxable income becomes $130,000 for tax purposes. You pay ordinary income tax on that full amount at your marginal tax rate.

This matters because tax brackets are progressive. If the conversion pushes you into a higher bracket, you pay a higher rate on the converted money. For example, if you are single and earn $50,000, you are in the 22% bracket in 2024. A $30,000 conversion moves $10,000 of it into the 24% bracket. You do not pay 22% on all $30,000; you pay 22% on part of it and 24% on the rest.

You owe this tax when you file your return the following April, unless you make estimated tax payments during the year. If you do not pay enough tax by April, you may owe penalties. Many people pay the tax from outside money (savings, salary) rather than taking it from the conversion itself, because taking it from the conversion reduces the amount that grows tax-free in the Roth.

The pro-rata rule and pre-tax money in traditional IRAs

If you have money in a traditional IRA (not a 401(k)), the pro-rata rule affects your conversion. This rule says that if you have both pre-tax and after-tax money across all your traditional IRAs, SEP IRAs, and straightforward IRAs, a conversion treats them proportionally.

For example: you have $80,000 in a traditional IRA (pre-tax) and $20,000 in a traditional IRA (after-tax contributions). You want to convert $20,000 to a Roth. The IRS says 80% of your total is pre-tax, so 80% of the $20,000 conversion ($16,000) is taxable. You pay tax on $16,000, not $4,000. This rule applies even if the accounts are at different banks.

The 401(k) itself is not subject to the pro-rata rule — only traditional IRAs are. This is one reason some people roll a 401(k) into a traditional IRA first, then convert to a Roth: if they have no other traditional IRA money, the pro-rata rule does not explore, and the entire conversion is taxable (which is what they want). However, this strategy only works if you have no other traditional IRAs. Consult a tax professional before attempting this.

The five-year rule for Roth conversions

Money you convert to a Roth IRA is subject to a five-year holding period before you can withdraw the converted amount penalty-free. This is separate from the five-year rule that applies to regular Roth IRA contributions.

If you convert $50,000 in 2024, you cannot withdraw that $50,000 penalty-free until 2029, even if you are over 59½. If you withdraw it before 2029 and you are under 59½, you pay a 10% early withdrawal penalty on the converted amount. However, you can always withdraw your regular Roth contributions (money you put in directly) at any time without penalty.

Each conversion has its own five-year clock. If you convert $20,000 in 2024 and another $30,000 in 2025, the 2024 conversion is available penalty-free starting in 2029, and the 2025 conversion starting in 2030. Earnings on the converted money are always subject to the 59½ age rule and the five-year rule for Roth accounts generally.

Step-by-step process for rolling over to a Roth IRA

First, open a Roth IRA if you do not already have one. You can open one at any bank, brokerage, or investment firm that offers IRAs — Fidelity, Vanguard, Charles Schwab, and many others. You will need your Social Security number and basic personal information.

Second, contact your 401(k) plan administrator (usually your employer's benefits department or the plan custodian) and request a rollover to a Roth IRA. Tell them the name and address of the financial institution where your Roth IRA is held. You can ask for a direct rollover, where the money goes straight from the 401(k) to the Roth IRA custodian, or an indirect rollover, where you receive a check and deposit it yourself within 60 days. A direct rollover is simpler and avoids the 60-day important date.

Third, report the conversion on your tax return. You will receive a Form 1099-R from your 401(k) plan showing the amount distributed. Your Roth IRA custodian will also send you a Form 5498 showing the amount contributed. On your return, you report the conversion and calculate the tax owed. If you are unsure how to report it, a tax professional can help.

Common mistakes to avoid

Do not assume you can convert while still employed without checking your plan first. Many 401(k) plans do not allow in-service conversions, and attempting one may result in a rejected request or a taxable distribution you did not intend.

Do not withdraw money from your 401(k) to pay the tax bill on the conversion. If you take $50,000 and use $10,000 to pay taxes, only $40,000 goes into the Roth, and you owe tax on the full $50,000 anyway. You also may owe a 10% early withdrawal penalty on the $10,000 you took out if you are under 59½. Pay the tax from savings or salary instead.

Do not forget about the pro-rata rule if you have a traditional IRA. Even a small traditional IRA balance can make a large portion of your conversion taxable. If you have both a 401(k) and a traditional IRA, talk to a tax professional before converting.

Do not miss the 60-day important date if you choose an indirect rollover. If the check is not deposited into a Roth IRA within 60 days, the IRS treats it as a taxable distribution and you may owe a 10% penalty if you are under 59½.

Frequently Asked Questions

Can I convert my 401(k) to a Roth IRA if my income is too high for a regular Roth contribution?

Yes. Roth conversions have no income limit, even though direct Roth IRA contributions do. This is called the "backdoor Roth" strategy when used intentionally: you convert a traditional IRA or 401(k) to a Roth regardless of how much you earn. However, the pro-rata rule may explore if you have other traditional IRA money.

What happens if I convert and then my income is lower than expected that year?

You still owe tax on the full converted amount based on your actual income. However, you can undo the conversion by doing a "recharacterization" before your tax return is due (including extensions). This reverses the conversion, and you can redo it in a later year if you prefer. Talk to your tax professional about whether this makes sense for your situation.

Can I convert only part of my 401(k) to a Roth and leave the rest in the 401(k)?

Yes, if your plan allows it. You can convert a portion and leave the rest in the 401(k) or roll the rest to a traditional IRA. This lets you spread conversions over multiple years to manage your tax bill. Check with your plan administrator about whether partial conversions are permitted.

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

No. You can convert in installments over several years, which can help keep your tax bill lower each year by spreading the income across multiple tax years. Each conversion is reported separately on your return.

What if I convert and then need the money back before five years?

You can withdraw the converted amount, but you will owe a 10% early withdrawal penalty if you are under 59½. The five-year rule is strict. If you think you might need the money within five years, a Roth conversion may not be the right choice for that amount.