How to Move Money From a 401(k) to a Roth IRA

You can transfer money from a 401(k) to a Roth IRA, but you will owe income tax on the amount you move

A 401(k)-to-Roth conversion means taking money out of your 401(k) and depositing it into a Roth IRA. The IRS allows this move, but treats it as a taxable event: you pay ordinary income tax on whatever amount you convert in that tax year. You do not have to convert your entire 401(k) balance — you can convert 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 tax-free growth later. Money in a Roth IRA grows without tax, and you can withdraw earnings tax-free after age 59½ if the account has been open at least five years. A 401(k) requires you to take withdrawals starting at age 73 (as of 2023), whether you need the money or not. A Roth has no required withdrawals during your lifetime. The trade-off is paying tax now instead of later.

Key Takeaways

You can convert all or part of a 401(k) to a Roth IRA at any time, but the amount you convert is taxable income in that year.
You must have earned income in the year you convert, and your employer's 401(k) plan must allow in-service distributions or you must be separated from the employer.
There is no income limit to do a conversion, unlike direct contributions to a Roth IRA.
If you have a traditional IRA, SEP IRA, or straightforward IRA, the conversion is more complicated because of the pro-rata rule, which may increase your tax bill.
You have 60 days from the time you receive the money to deposit it into the Roth IRA, or the IRS treats it as a withdrawal.

Who can do a 401(k)-to-Roth conversion

You can convert if you have a 401(k) and access to a Roth IRA. Access means you either already have a Roth IRA open, or you can open one — there is no income limit for conversions, though there is an income limit for direct contributions to a Roth.

Your 401(k) plan must allow you to take the money out. If you are still working for the employer that sponsors the plan, the plan must permit in-service distributions. Not all plans do. If you have left the employer, you can almost always roll the 401(k) out, either directly to a Roth IRA or first to a traditional IRA and then to a Roth. Check your plan documents or call your plan administrator to confirm whether in-service conversions are allowed.

You must have earned income in the year you convert. This is a technical requirement: the IRS ties Roth contributions and conversions to compensation you received that year. If you had no income, you cannot convert.

The two ways to move the money

A direct rollover (also called a trustee-to-trustee transfer) means your 401(k) plan administrator sends the money straight to your Roth IRA custodian. You never touch it. This is the safest method because there is no 60-day window and no risk of accidentally triggering a tax withholding.

An indirect rollover means the plan sends you a check. You then deposit it into your Roth IRA within 60 calendar days. If you miss the important date, the IRS treats the money as a withdrawal, and you owe tax on it plus a 10% penalty if you are under 59½. The plan may also withhold 20% for federal income tax, which you will need to replace with your own money to deposit the full amount into the Roth — if you do not, the withheld amount is treated as a withdrawal.

Direct rollover is simpler. Ask your 401(k) plan administrator how to request one and whether they can send it directly to your Roth IRA custodian by name.

How the tax bill works

The amount you convert becomes ordinary income in the year you convert. If you convert $50,000, you add $50,000 to your taxable income for that year. Your tax bracket determines how much you owe — the higher your income, the higher your rate.

If your 401(k) contains both pre-tax contributions (the money your employer deducted from your paycheck before tax) and after-tax contributions (money you put in with after-tax dollars), only the pre-tax portion is taxable when you convert. After-tax contributions are not taxed again. However, if you have a traditional IRA, SEP IRA, or straightforward IRA with any pre-tax money in it, the IRS applies the pro-rata rule. This rule treats all your IRAs as one pool: if 70% of your total IRA balance is pre-tax, then 70% of your conversion is taxable, even if you are converting only from the after-tax portion. This can create a larger tax bill than you expect.

You pay the tax when you file your return for that year. The IRS does not withhold it automatically on a conversion, so you may need to set aside money to cover the bill, or make estimated tax payments during the year.

Timing and the 60-day rule

If you do an indirect rollover, you have 60 calendar days from the day you receive the check to deposit the money into your Roth IRA. The clock starts the day the plan sends it to you, not the day it arrives. Weekends and holidays count toward the 60 days.

If you miss the important date, the IRS treats the money as a taxable distribution. You owe income tax on it, and if you are under 59½, you also owe a 10% early withdrawal penalty. There is no exception for "I was one day late" — the rule is strict.

If the plan withheld 20% for federal tax, that withheld amount is also treated as a distribution if you do not deposit the full amount (including the withheld portion) into the Roth within 60 days. To avoid this, you must deposit the full amount from your own funds and then claim the withheld amount as a tax credit when you file.

The pro-rata rule and why it matters

If you have any money in a traditional IRA, SEP IRA, straightforward IRA, or rollover IRA, the pro-rata rule applies to your conversion. The rule says: add up all your pre-tax IRA money and all your after-tax IRA money across all IRAs. The percentage that is pre-tax determines what portion of your conversion is taxable.

Example: You have a traditional IRA with $90,000 in pre-tax contributions and a Roth IRA with $10,000 (after-tax, already converted). You want to convert $20,000 from your 401(k) to the Roth. Your total IRA balance is $100,000, of which $90,000 is pre-tax. That is 90%. So 90% of your $20,000 conversion ($18,000) is taxable. You cannot avoid this by converting only the after-tax portion of your 401(k).

The pro-rata rule does not explore to 401(k)s themselves — only to IRAs. If you have a 401(k) with pre-tax and after-tax money, you can convert only the after-tax portion to a Roth and avoid the pro-rata rule, as long as you do not have any IRAs. If you do have IRAs, the rule applies to the whole picture.

What happens to the money after conversion

Once the money is in your Roth IRA, it grows tax-free. You can withdraw contributions (the money you put in) at any time without tax or penalty. You can withdraw earnings (the growth) tax-free after age 59½ if the Roth has been open at least five years. Before age 59½, you can withdraw earnings only in certain situations: disability, death, first-time home purchase (up to $10,000 lifetime), or may have access to education expenses.

A Roth IRA has no required minimum distributions during your lifetime. You can leave the money there as long as you want. Your beneficiaries will inherit it tax-free if you leave it to them.

The converted amount does not count toward the annual contribution limit for Roth IRAs. You can convert $100,000 and still contribute $7,000 (or $8,000 if you are 50 or older) in the same year, if you have earned income to cover it.

Frequently Asked Questions

Can I undo a conversion if I change my mind?

You can undo a conversion through a process called a recharacterization, but only if you do it before the tax filing important date (including extensions) for the year you converted. You tell your Roth IRA custodian to move the money back to a traditional IRA or 401(k). After the important date, you cannot undo it — you are locked into the tax bill.

What if I convert and then the market drops?

You still owe tax on the full amount you converted, even if the value drops afterward. If you converted $50,000 and it falls to $40,000, you owe tax on $50,000. This is one reason some people convert in smaller amounts over multiple years, or wait for market downturns to convert.

Does a conversion affect Social Security or Medicare?

A conversion increases your taxable income for that year, which can affect your Medicare premiums (higher income means higher premiums) and the taxation of Social Security benefits. If you are close to retirement, talk to a tax professional before converting, because the impact can be significant.

Can I convert if I am still working?

Yes, if your 401(k) plan allows in-service distributions. Some plans do, some do not. You do not have to leave the job to convert. Check with your plan administrator about whether this option is available.

What if my employer plan does not allow conversions?

You can roll the 401(k) to a traditional IRA first, then convert from the traditional IRA to a Roth. This works only if you are no longer employed by that employer. If you are still working there, you are stuck until you leave or the plan changes its rules.

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.