Yes, you can roll a 401(k) into a Roth IRA, but you'll owe income tax on the money you move

A Roth conversion lets you take money from your 401(k) and move it into a Roth IRA. The catch is that the IRS treats the money you convert as income in that tax year, so you'll owe federal income tax on the full amount. If your 401(k) has $50,000 and you convert all of it, you'll report $50,000 as taxable income on your tax return that year.

The payoff is that once the money is in the Roth IRA, it grows tax-free. You won't owe tax on the earnings, and you can withdraw the money tax-free in retirement (as long as you follow Roth rules). This makes a Roth conversion useful if you expect to be in a higher tax bracket later, or if you want to lock in current tax rates before they change.

You can do a Roth conversion at any age and at any income level. There's no income limit that blocks you from converting, unlike the income limits that explore to regular Roth IRA contributions. You also don't have to convert your entire 401(k)—you can convert part of it and leave the rest where it is.

Key Takeaways

  • You pay income tax on the full amount you convert in the year you convert it, so plan for a larger tax bill that year.
  • Money in a Roth IRA grows tax-free and can be withdrawn tax-free in retirement, unlike a traditional 401(k).
  • You can convert at any age and any income level, and you can convert part of your 401(k) while leaving the rest untouched.
  • If you have other pre-tax retirement accounts (like a traditional IRA), the IRS may tax part of your conversion based on all your pre-tax balances combined.
  • You must complete the conversion within 60 days of taking the money from your 401(k), or it may be treated as a withdrawal instead.

When you can convert: leaving a job or while still employed

You can convert a 401(k) to a Roth IRA in two main situations. The first is after you leave your job—your former employer's plan administrator will let you roll money out. The second is while you're still employed, if your plan allows it. Not all plans permit in-service conversions, so check your plan documents or call your plan administrator to ask.

If you're over 59½, you can convert without penalty. If you're younger, the money you convert is subject to the 10% early withdrawal penalty—unless you may have access to for an exception. Common exceptions include disability, medical expenses above a certain threshold, or a series of equal periodic payments. The penalty applies to the conversion itself, not to future withdrawals from the Roth after conversion.

If you're still working and your plan doesn't allow in-service conversions, you'll have to wait until you leave the job, retire, or reach 59½ to move the money out.

The tax bill: how much you'll owe and when

The IRS taxes a Roth conversion as ordinary income in the year you do it. If you convert $50,000, you add $50,000 to your taxable income for that year. Your tax bill depends on your total income and your tax bracket.

For example, if you earn $75,000 as salary and convert $50,000 from your 401(k), your taxable income for the year is $125,000. You'll pay tax on that full amount at your marginal rate. This can push you into a higher tax bracket, which means some of the conversion is taxed at a higher percentage than your regular income.

You owe the tax when you file your return the following April. Some people set aside money from the conversion to pay the tax bill, or they pay it from other savings. If you don't have the cash to pay the tax, you can pay it from the conversion itself, but that reduces the amount that ends up in your Roth IRA.

The pro-rata rule: how other retirement accounts affect your conversion

If you have money in a traditional IRA, a SEP IRA, or a straightforward IRA, the IRS applies the pro-rata rule to your conversion. This rule looks at all your pre-tax retirement accounts combined and calculates what percentage of your total balance is pre-tax money versus after-tax money.

Here's how it works: suppose you have a traditional IRA with $100,000 in pre-tax contributions and $20,000 in after-tax contributions (money you already paid tax on). Your total is $120,000. If you convert $30,000 from your 401(k) to a Roth, the IRS says that 83% of what you're converting ($100,000 ÷ $120,000) is pre-tax money, so you owe tax on $25,000 of the conversion. The remaining $5,000 is treated as after-tax money you already paid tax on, so it's not taxed again.

The pro-rata rule applies to all your IRAs as a group, not to each account separately. If you want to avoid this rule, you can roll your traditional IRA into your 401(k) (if your plan allows it) before you convert. That removes the traditional IRA from the calculation and may let you convert with a lower tax bill.

The 60-day window: how long you have to complete the conversion

When you request a distribution from your 401(k), you have 60 days to deposit it into a Roth IRA. If you miss that important date, the IRS treats it as a withdrawal, not a conversion. You'll owe income tax on it anyway, plus the 10% early withdrawal penalty if you're under 59½.

The 60-day clock starts the day you receive the money. If your 401(k) administrator mails you a check, the clock starts when you get it, not when they send it. If the money goes directly to your bank account, it starts when it lands there.

To be safe, deposit the money into your Roth IRA as soon as you receive it. Don't wait until day 59. If there's a delay with your bank or the receiving IRA custodian, you could miss the important date through no fault of your own. The IRS can grant a waiver in some cases, but it's rare and requires a formal request.

Direct rollover versus indirect rollover: which route to take

A direct rollover means your 401(k) administrator sends the money straight to your Roth IRA custodian. You never touch the money. This is the safest route because there's no 60-day clock and no withholding.

An indirect rollover means the 401(k) administrator sends you a check or deposits the money into your bank account, and you then deposit it into your Roth IRA yourself. This route has two risks: you have only 60 days to complete the deposit, and the administrator may withhold 20% for federal taxes. If $50,000 is converted, you might receive only $40,000, and you'd have to come up with the $10,000 withholding from your own pocket to deposit the full amount into the Roth. Otherwise, the $10,000 is treated as a withdrawal and you owe tax on it plus the early withdrawal penalty.

Ask your 401(k) administrator whether they can do a direct rollover to a Roth IRA. Most large plans can. If they can't, use an indirect rollover but move quickly and account for the withholding.

After the conversion: what happens to your Roth IRA

Once money is in your Roth IRA, it's subject to Roth rules. You can withdraw your contributions (the money you converted) at any time without tax or penalty. You can withdraw the earnings (the money your contributions grew into) tax-free after age 59½, as long as the account has been open for at least five years.

If you withdraw earnings before 59½ or before the five-year mark, you owe income tax on the earnings and a 10% penalty. The five-year rule is per account, not per conversion—once one Roth IRA has been open for five years, all your Roth IRAs satisfy the rule.

You don't have to take withdrawals from a Roth IRA at any age. Unlike a traditional 401(k) or traditional IRA, there are no required minimum distributions. This makes a Roth useful if you don't need the money in retirement and want to leave it to heirs.

Frequently Asked Questions

Do I have to convert my whole 401(k) or can I convert just part of it?

You can convert part of your 401(k) and leave the rest where it is. This lets you spread the tax bill across multiple years if you want. For example, you could convert $20,000 this year and $20,000 next year instead of converting $40,000 all at once. Each conversion is a separate transaction with its own tax bill.

What if I change my mind after I convert?

You can undo a conversion by doing a recharacterization, but only within certain time limits. You must recharacterize by the tax-filing important date (usually April 15) of the year after the conversion. If you recharacterize, the money goes back to a traditional IRA and you don't owe tax on the conversion. However, you also lose any earnings the money made while it was in the Roth.

Can I convert if I'm still working and haven't retired yet?

Yes, if your 401(k) plan allows in-service conversions. Not all plans do. Contact your plan administrator or HR department to ask. If your plan doesn't allow it, you'll have to wait until you leave the job, reach 59½, or retire.

Will converting push me into a higher tax bracket?

It may. A large conversion can increase your taxable income enough to move you into a higher bracket, which means some of the conversion is taxed at a higher rate. This is why some people convert smaller amounts over several years instead of one large conversion. A tax professional can model different conversion amounts to show you the tax impact.

What's the difference between a Roth conversion and a Roth contribution?

A Roth contribution is money you put into a Roth IRA directly from your paycheck or savings. A Roth conversion is money you move from a pre-tax account (like a 401(k) or traditional IRA) into a Roth IRA. Conversions are taxed; contributions are not. There's no income limit on conversions, but there is an income limit on direct contributions.