Moving Money From Your 401(k) to a Roth IRA

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

You can transfer funds from a 401(k) to a Roth IRA through a process called a Roth conversion. The money moves directly from your 401(k) plan to a Roth IRA you open or already own. However, the IRS treats the amount you convert as taxable income in the year you move it, which means you will owe federal income tax on that money at your ordinary tax rate.

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 the time of the move. With a Roth conversion, you pay the tax upfront, but then the money grows tax-free inside the Roth IRA, and you will not owe tax on withdrawals later.

The conversion works best if you have left your job (so you no longer have access to the 401(k) plan) or if your current employer's plan allows in-service distributions. Not all plans permit in-service conversions, so you will need to check your plan documents or call your plan administrator first.

Key Takeaways

You can convert a 401(k) to a Roth IRA, but you must pay income tax on the full amount converted in the year you move it.
The conversion is easiest after you leave your job, because most employers allow distributions once you are no longer employed.
If you are still working, your employer's 401(k) plan must permit in-service conversions, which not all plans do.
You can convert as much or as little as you want, but there is no annual limit on the amount you convert — only on how much you can contribute to a Roth IRA each year.
A direct trustee-to-trustee transfer avoids withholding and keeps the process straightforward.

When you can convert: leaving your job versus staying employed

The easiest time to convert is after you leave your job. Once you are no longer employed by the company that sponsors the 401(k), the plan must allow you to take a distribution. You can then roll that money directly into a Roth IRA. Your former employer's plan administrator will send the funds to the Roth IRA custodian (usually a bank or brokerage) in your name.

If you are still employed and want to convert while you work, your plan must allow in-service conversions. This is optional for employers, so many plans do not permit it. Check your plan's summary document or call your plan administrator to find out whether your plan allows in-service conversions to a Roth IRA. If it does not, you will have to wait until you leave the job.

Some plans also allow in-service distributions at age 59½ or after a certain number of years of service, even if you are still employed. These rules vary by plan, so ask your administrator what options are available to you.

How the tax bill works when you convert

When you convert a 401(k) to a Roth IRA, the IRS counts the full amount as ordinary income on your tax return for that year. If you convert $50,000, you will report $50,000 as taxable income. Your tax bill depends on your tax bracket — the higher your income that year, the higher your tax rate on the conversion.

This can push you into a higher tax bracket. For example, if you normally earn $75,000 a year and convert $50,000, the IRS treats your income as $125,000 for that year. You will owe tax at the rate that applies to that higher amount. This is why many people convert in years when their income is lower — such as the year they retire or take unpaid leave.

You do not have to convert all your 401(k) money at once. You can convert part of it one year and part another year, spreading the tax bill across multiple years. This strategy, called a partial conversion, lets you manage your tax bracket and avoid a large bill in a single year.

Direct transfer versus rollover check: which method to use

There are two ways to move the money: a direct trustee-to-trustee transfer or a rollover check. A direct transfer is simpler and safer. You contact your 401(k) plan administrator and ask them to send the money directly to your Roth IRA custodian. The money never touches your hands, so there is no withholding and no risk of missing a important date.

A rollover check means the plan sends you a check for the amount you are converting. You then deposit it into your Roth IRA within 60 days. This method has a catch: the plan will withhold 20% of the amount for federal income tax, even though you will owe tax on the full amount. If you convert $50,000 by check, you will receive only $40,000, and the plan sends $10,000 to the IRS. You will still owe tax on the full $50,000, so you have to make up the $10,000 difference from your own money or the conversion is incomplete.

The direct transfer avoids this problem entirely. Use it whenever your plan and your Roth IRA custodian both support it.

The pro-rata rule: what happens if you have a traditional IRA

If you own a traditional IRA in addition to your 401(k), the IRS pro-rata rule affects your conversion. The rule says that when you convert any pre-tax IRA money to a Roth, the IRS treats all your pre-tax IRAs as one pool. You cannot convert only the after-tax portion and leave the pre-tax portion behind.

Here is how it works: suppose you have a traditional IRA with $100,000 in pre-tax money and a 401(k) with $50,000. You want to convert the 401(k) to a Roth. The IRS looks at your total pre-tax IRA balance ($100,000) plus the amount you are converting ($50,000) and treats 100/150 of the conversion as pre-tax money. That means $33,333 of your $50,000 conversion is taxable, and you cannot avoid the tax by converting only the after-tax portion.

If you have a traditional IRA and want to do a Roth conversion, consider rolling the traditional IRA into your 401(k) first (if your plan allows it). This removes the traditional IRA from the pro-rata calculation and lets you convert the 401(k) with less tax impact.

Income limits and contribution limits: what you need to know

There is no income limit on Roth conversions. Even if you earn too much to contribute directly to a Roth IRA, you can still convert a 401(k) to a Roth. This is one reason conversions are useful for higher earners.

There is also no annual limit on how much you can convert. You can convert $10,000 one year and $100,000 the next year if you want. The only limit is the balance in your 401(k).

However, if you contribute to a Roth IRA in the same year you convert, your contributions count toward the annual contribution limit (which varies by year and your age). Conversions do not count toward this limit, but your direct contributions do. For example, if the annual limit is $7,000 and you contribute $3,000 directly, you can only convert the remaining $4,000 that year if you want to stay within the limit. Check the IRS website or your tax professional for the current year's limit.

Timing and important date: when the money must arrive

A direct trustee-to-trustee transfer has no strict important date — the plan and the Roth IRA custodian coordinate the timing. However, you should request the transfer early in the year if you want to report it on that year's tax return. If the transfer happens in December but does not complete until January, you may need to report it on the following year's return instead.

If you receive a rollover check, you have 60 days to deposit it into the Roth IRA. The 60 days starts the day you receive the check. If you miss this important date, the IRS treats the money as a distribution, not a conversion, and you will owe tax plus a 10% early withdrawal penalty if you are under 59½.

Report the conversion on your tax return for the year in which the money arrives in the Roth IRA, not the year you requested it. Your 401(k) plan will send you a Form 1099-R showing the distribution, and your Roth IRA custodian will send you a Form 5498 showing the contribution. You will use these forms when you file your taxes.

Frequently Asked Questions

Can I convert my 401(k) to a Roth IRA if I am still working?

Only if your employer's 401(k) plan permits in-service conversions. Not all plans allow this. Contact your plan administrator to find out whether yours does. If it does not, you will have to wait until you leave the job.

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

No. You can convert part of your 401(k) one year and the rest in later years. This lets you spread the tax bill across multiple years and avoid pushing yourself into a higher tax bracket all at once.

What happens to my 401(k) employer match if I convert?

You can only convert money that is fully vested — money that belongs to you. If part of your employer match is not yet vested, you cannot convert that portion. Once you leave the job, all remaining unvested money is forfeited, so convert only the vested balance.

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

You can recharacterize a conversion (move the money back to a traditional IRA) only if you do so by the tax filing important date for that year, including extensions. After that important date, the conversion is permanent. Consult a tax professional before recharacterizing, because the rules are complex.

Will converting to a Roth IRA affect my Social Security or Medicare benefits?

A Roth conversion counts as income in the year you convert, which can affect your Medicare premiums and the taxation of your Social Security benefits. If you are near retirement, talk to a tax professional before converting to understand the full impact on your benefits.

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.