Moving Money From a 401(k) to a Roth IRA: What You Need to Know

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

A rollover from a 401(k) to a Roth IRA is allowed under federal tax law, but it works differently than rolling into a traditional IRA. When you move pre-tax 401(k) money into a Roth IRA, the IRS treats it as a conversion. You must report the full amount you convert as taxable income in that year, which means you'll owe federal income tax on it — possibly state income tax too, depending on where you live. After you pay that tax, the money grows tax-free in the Roth IRA, and you can withdraw it tax-free in retirement.

The choice to convert depends on whether you think your tax rate now is lower than it will be when you retire. If you're in a lower tax bracket this year, converting might make sense. If you expect to be in a lower bracket later, it probably doesn't.

Key Takeaways

Converting a 401(k) to a Roth IRA requires you to pay income tax on the full amount converted in the year you do it.
You can only convert from a 401(k) to a Roth IRA if your plan allows in-service distributions or if you've left your job.
There is no income limit for Roth conversions, but high earners may face a "pro-rata rule" if they have other traditional IRAs with pre-tax money.
The conversion is a one-time event; you don't need to repeat it every year unless you choose to convert again.
You have 60 days from the time you receive the 401(k) distribution to deposit it into a Roth IRA, or the IRS treats it as a withdrawal.

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

Your ability to convert depends on your employment status and your plan's rules. If you're still working for the company that sponsors your 401(k), you may be able to do an in-service conversion — but only if your plan document allows it. Not all plans do. You'll need to contact your plan administrator (usually the HR or benefits department) to ask whether in-service conversions are permitted.

If you've left your job, you can convert your 401(k) to a Roth IRA regardless of whether your old plan allows in-service conversions. Once you're no longer employed by that company, you can request a distribution from the 401(k) and roll it into a Roth IRA. Some people do this when ready after leaving a job; others wait months or years.

You cannot convert a 401(k) while you're still employed and your plan doesn't allow in-service conversions. In that case, your only option is to wait until you leave the job.

How the conversion process works step by step

The conversion itself is straightforward, but timing matters. First, contact your 401(k) plan administrator and request a distribution. You can ask for the full balance or a partial amount — you don't have to convert everything at once. The plan will cut a check or initiate an electronic transfer.

You then have 60 days from the date you receive the money to deposit it into a Roth IRA. This is a hard important date. If the money sits in your bank account for 61 days, the IRS treats it as a withdrawal, not a rollover, and you'll owe a 10% early withdrawal penalty on top of income tax (unless you're over 59½ or another exception applies).

The safest approach is a direct rollover: the 401(k) plan sends the money straight to the Roth IRA custodian (your brokerage or bank) without it touching your hands. This avoids the 60-day clock and the risk of accidentally missing the important date. Ask your plan administrator whether they can do a direct rollover to a Roth IRA. Some plans will; some won't.

If you do receive the check yourself, deposit it into the Roth IRA as soon as possible. Keep documentation of the deposit date.

The tax bill you'll owe on a conversion

When you convert, the full amount you move becomes taxable income in that year. If you convert $50,000, you add $50,000 to your taxable income. The tax you owe depends on your tax bracket. If you're in the 24% federal bracket, a $50,000 conversion costs you $12,000 in federal tax alone (plus any state tax).

You must pay this tax from money outside the conversion. Do not use 401(k) money to pay the tax bill — if you do, that money counts as a distribution and is taxed again. Pay the tax from your checking account, savings, or other funds.

You can estimate your tax liability before you convert by using the IRS tax tables or consulting a tax professional. Some people convert in a year when they know their income will be lower — for example, the year they retire or take unpaid leave.

The pro-rata rule and why it matters if you have other IRAs

If you have money in a traditional IRA (not a Roth IRA, and not a 401(k)), the pro-rata rule affects your conversion. This rule says that when you convert, the IRS treats all your traditional IRAs, SEP IRAs, and straightforward IRAs as one pool. You can't convert only the after-tax money and leave the pre-tax money behind.

Here's an example: suppose you have a traditional IRA with $100,000 in pre-tax contributions and $20,000 in after-tax contributions (contributions you already paid tax on). If you convert $20,000 to a Roth, the IRS says you're converting 83% pre-tax money and 17% after-tax money, based on the ratio in your total IRA balance. So $16,600 of the conversion is taxable, and $3,400 is not.

If you have no traditional IRAs, SEP IRAs, or straightforward IRAs, the pro-rata rule doesn't explore. You can convert your 401(k) without worrying about it. If you do have other IRAs, you may want to roll them into your 401(k) first (if your plan allows) to remove them from the pro-rata calculation.

Roth IRA contribution limits don't explore to conversions

The annual Roth IRA contribution limit — the amount you can add to a Roth IRA each year through regular contributions — does not explore to conversions. You can convert $100,000, $500,000, or any amount, regardless of the annual limit. The limit only restricts how much you can contribute directly to a Roth IRA from your paycheck or savings.

There is also no income limit for conversions. Even if your income is too high to contribute directly to a Roth IRA, you can still convert a 401(k) to one. This is why conversions are popular with high earners.

What happens after the conversion is complete

Once the money is in the Roth IRA, it grows tax-free. You don't pay tax on dividends, interest, or capital gains inside the account. When you withdraw money in retirement (after age 59½ and after the account has been open for at least five years), the withdrawals are tax-free.

If you withdraw money before age 59½, you may owe a 10% early withdrawal penalty on the earnings portion of the account. However, you can always withdraw the amount you converted without penalty — only the earnings are subject to the penalty. This is one reason some people convert: it gives them access to the converted amount if they need it before retirement.

You are not required to take distributions from a Roth IRA during your lifetime. Unlike a traditional 401(k) or traditional IRA, a Roth IRA has no required minimum distributions. This makes it useful for leaving money to heirs or for people who don't need the income in retirement.

Frequently Asked Questions

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

You can undo a conversion through a process called a recharacterization, but only under specific circumstances and within a time limit. The rules changed in 2018, and now recharacterizations are generally allowed only if you made a mistake or if the conversion was part of a failed rollover. You must complete the recharacterization by the tax filing important date (including extensions) for the year you did the conversion. Consult a tax professional before attempting a recharacterization, as the rules are complex.

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 the plan (if you're still employed and your plan allows in-service conversions) or in a traditional IRA (if you've left your job). Many people convert in stages over multiple years to spread out the tax bill across different tax years.

What if my 401(k) has employer matching contributions?

Employer matching contributions are pre-tax money, so they're fully taxable when you convert them. You can't separate them from your own contributions for tax purposes. The entire amount you convert — your contributions plus employer contributions plus earnings — is treated as one pool.

Can I convert a 401(k) loan to a Roth IRA?

No. A 401(k) loan is not a distribution, so you can't roll it into a Roth IRA. If you have an outstanding loan and you leave your job, the loan typically must be repaid within 60 days or it's treated as a taxable distribution. You can convert the remaining balance in your 401(k), but not the loan itself.

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

A conversion increases your taxable income for that year, which could affect your Medicare premiums if your income crosses certain thresholds. Social Security benefits are not directly affected by a conversion, but the increased income could cause more of your benefits to be taxed. Consult a tax professional or financial advisor if you're on Medicare or receiving Social Security and are considering a large conversion.

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.