How to Roll Over a 401(k) to a Roth IRA

Yes, you can roll over a 401(k) to a Roth IRA, but you will owe income tax on the amount converted in that tax year

A Roth conversion moves money from your 401(k) into a Roth IRA. The conversion itself is allowed by the IRS, but it is treated as taxable income. If you convert $50,000, you report $50,000 as income on your tax return for that year and pay tax on it at your ordinary income tax rate. After the conversion, the money grows tax-free in the Roth IRA, and you can withdraw it tax-free in retirement if you follow the rules.

The main reason people do this is to move money into an account with no required withdrawals and tax-free growth. But the tax bill in the conversion year can be substantial, so most people only convert when it makes sense for their income and tax bracket.

Key Takeaways

You can convert a 401(k) balance to a Roth IRA at any time, but the full amount you convert counts as taxable income in that year.
Your 401(k) plan must allow in-service distributions or you must be separated from your employer; some plans do not permit conversions while you still work there.
After a Roth conversion, you must wait five years before withdrawing the converted amount tax-free, and you must be at least 59½ years old (with limited exceptions).
There is no income limit on Roth conversions, unlike direct contributions to a Roth IRA, so high earners can use this route to build Roth savings.
The tax you owe is due when you file your return for the year of conversion; the IRS does not withhold it automatically from the rollover.

Who can do a Roth conversion and when

You can convert a 401(k) to a Roth IRA if you are no longer employed by the company that sponsors the plan, or if your plan allows in-service distributions while you are still working there. In-service distributions are rare but do exist; you would need to contact your plan administrator to ask whether yours permits them.

If you have already left your job, you can convert at any time. There is no age requirement, no income limit, and no important date. You can convert the entire balance or part of it. If you convert part of it, the rest can stay in the 401(k), roll over to a traditional IRA, or be withdrawn (though withdrawal triggers tax and possibly a 10% penalty if you are under 59½).

The conversion itself is a direct transfer from your 401(k) custodian to the Roth IRA custodian. You do not receive the money in your hands. If the money passes through you first, it becomes a taxable distribution and may be subject to a 10% early withdrawal penalty if you are under 59½.

The tax bill you owe on conversion

When you convert, the IRS treats the full amount as ordinary income for that tax year. If you convert $100,000 and your ordinary income tax bracket is 24%, you owe $24,000 in federal income tax. You may also owe state income tax depending on where you live. This tax is not withheld automatically; you must pay it when you file your return or make estimated tax payments during the year.

Many people pay the tax from money outside the Roth IRA so the full converted amount stays invested. If you use money from the conversion itself to pay the tax, that reduces the amount that ends up in the Roth IRA and may trigger an additional 10% penalty if you are under 59½.

The tax bill is one reason people convert in years when their income is lower than usual — for example, the year they retire before Social Security starts, or a year with a major loss. A lower income year means a lower tax bracket and a smaller tax bill on the same conversion amount.

The five-year rule and withdrawal timing

After you convert, you must wait five years before you can withdraw the converted amount tax-free. This is the five-year holding period for conversions. The clock starts on January 1 of the year you do the conversion. If you convert in 2024, the five-year period ends on December 31, 2028.

If you withdraw the converted amount before five years have passed, you owe income tax on it again (even though you already paid tax when you converted). You may also owe a 10% early withdrawal penalty if you are under 59½, unless an exception applies.

The five-year rule applies to the converted amount only, not to earnings on that amount. Earnings follow a separate five-year rule tied to your first Roth IRA contribution or conversion, whichever came first. This can get complicated if you have multiple conversions in different years.

Roth conversion versus direct Roth IRA contribution

A Roth conversion is different from a direct contribution to a Roth IRA. Direct contributions have an income limit: in 2024, you cannot contribute directly to a Roth IRA if your modified adjusted gross income exceeds certain thresholds (these vary by filing status and change yearly). Conversions have no income limit, which is why high earners use them to build Roth savings.

With a direct contribution, you contribute after-tax money and it grows tax-free. With a conversion, you move pre-tax money from a 401(k) and pay tax on it in the conversion year, then it grows tax-free. The end result is similar, but the conversion route is open to anyone regardless of income.

What happens to the money you leave behind

If you convert only part of your 401(k), the rest stays where it is unless you take action. You can leave it in the 401(k), roll it to a traditional IRA, or withdraw it. If you leave it in the 401(k), you must begin taking required minimum distributions (RMDs) at age 73 (as of 2023; this age changes under current law). If you roll it to a traditional IRA, RMDs explore there too.

Some people do a partial conversion to manage their tax bill: they convert enough to use up a lower tax bracket without pushing themselves into a higher one. The rest stays in the 401(k) or rolls to a traditional IRA.

Pro rata rule and pre-tax money complications

If you have both pre-tax and after-tax money in your 401(k), the IRS applies the pro rata rule to conversions. This rule treats all your pre-tax and after-tax money across all your IRAs and 401(k)s as one pool. When you convert, a proportional amount of the conversion is treated as pre-tax (and therefore taxable) and a proportional amount as after-tax (and therefore not taxable again).

For example, if 80% of your total pre-tax and after-tax money is pre-tax, then 80% of any conversion is taxable. You cannot cherry-pick only the after-tax money to convert and avoid tax. This rule makes conversions more complicated if you have a mix of pre-tax and after-tax savings, and you may want to consult a tax professional before converting.

Frequently Asked Questions

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

Only if your 401(k) plan allows in-service distributions. Most plans do not. Contact your plan administrator or check your plan documents to find out. If your plan does not allow it, you must wait until you leave the job or reach age 59½ (some plans allow conversions at 59½ even while employed).

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

You can undo a conversion by doing a recharacterization before the tax filing important date (including extensions). This moves the money back to a traditional IRA or 401(k) and reverses the tax consequences. You would then owe no tax on the conversion. However, recharacterizations are only allowed if you have not already filed your return for that year.

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

No. You can convert part of it and leave the rest in the 401(k) or roll it elsewhere. You can also do multiple conversions in different years. Each conversion has its own five-year holding period and its own tax bill.

What if I need the money before five years have passed?

You can withdraw it, but you will owe income tax on the converted amount again and possibly a 10% early withdrawal penalty if you are under 59½. Exceptions to the penalty include disability, medical expenses over 7.5% of adjusted gross income, and a few others. The tax is owed regardless of age.

Does a Roth conversion affect my Social Security or Medicare premiums?

Yes. The conversion counts as income for that year, which can push you into a higher tax bracket and may increase your Medicare premiums (IRMAA). It can also affect the taxation of your Social Security benefits. This is another reason to plan conversions carefully, ideally with a tax professional.

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.