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

A Roth conversion lets you take money from your 401(k) and deposit it into a Roth IRA. The Roth IRA then grows tax-free, and you can withdraw earnings without taxes after age 59½ if the account has been open at least five years. The catch: you pay income tax on the full amount you convert in the year you move it, even though you are not taking the money out to spend.

This is different from a regular rollover to a traditional IRA, where you move pre-tax money without paying taxes when ready. A Roth conversion is a deliberate choice to pay taxes now in exchange for tax-free growth later. Whether it makes sense depends on your current tax bracket, how much longer until you retire, and whether you have cash on hand to pay the tax bill.

Key Takeaways

  • You can convert 401(k) money to a Roth IRA at any age, but you must pay income tax on the converted amount in that tax year.
  • After the conversion, the money grows tax-free in the Roth IRA, and you can withdraw it tax-free after age 59½ if the account has been open five years.
  • You can only convert from a 401(k) if your plan allows it, so check with your plan administrator first.
  • If you have other traditional IRA accounts, the IRS may tax part of your conversion based on the total value of all your traditional IRAs.
  • You do not have to convert all your 401(k) money at once — you can convert part of it in one year and part in another.

When your 401(k) plan allows conversions

Not every 401(k) plan permits conversions to a Roth IRA while you are still working. Some plans only allow conversions after you leave the job. Others allow them anytime. The first step is to contact your plan administrator — the company that manages your 401(k) — and ask whether in-service conversions are permitted.

If you have already left your job, you can almost always convert your 401(k) to a Roth IRA. Once you are no longer employed by that company, the money is yours to move. You straightforward request a distribution from the 401(k) and then deposit it into a Roth IRA within 60 days, or you can ask the 401(k) custodian to send the money directly to the Roth IRA custodian (called a trustee-to-trustee transfer, which is cleaner and avoids the 60-day window).

How the tax bill works on a conversion

When you convert, the IRS treats the converted amount as taxable income for that year. If you convert $50,000, you add $50,000 to your taxable income on your tax return. You then owe income tax on that amount at your ordinary tax rate — the same rate you pay on wages or salary.

This can push you into a higher tax bracket. For example, if you earn $80,000 a year and convert $40,000, your taxable income for the year becomes $120,000, which may move you from the 22% bracket into the 24% bracket. You would owe tax on the conversion at that higher rate.

You must pay this tax from your own funds — you cannot use the 401(k) money itself to cover the bill. If you do not have cash to pay the tax, you can withdraw money from the 401(k) to cover it, but that withdrawal is also taxable and may trigger a 10% penalty if you are under 59½.

The pro-rata rule and other traditional IRAs

If you have a traditional IRA in addition to your 401(k), the IRS applies the pro-rata rule to your conversion. This rule says that if you have both pre-tax and after-tax money across all your traditional IRAs and SEP IRAs, you cannot convert only the after-tax portion. Instead, the IRS calculates what percentage of your total IRA balance is pre-tax, and that same percentage of your conversion is taxable.

For example: you have a traditional IRA with $80,000 in pre-tax contributions and $20,000 in after-tax contributions (total $100,000). You want to convert $30,000 to a Roth IRA. Because 80% of your IRA balance is pre-tax, the IRS says 80% of your conversion ($24,000) is taxable. Only $6,000 is treated as after-tax and moves tax-free.

This rule applies to all traditional IRAs you own, including rollover IRAs from old 401(k)s. It does not explore to 401(k)s themselves — only to IRAs. So if you have a large traditional IRA balance and want to do a Roth conversion, you may want to roll that traditional IRA back into your current 401(k) first (if your plan allows it), which removes it from the pro-rata calculation.

The five-year rule for withdrawals

After you convert money to a Roth IRA, you must wait five years before you can withdraw the earnings tax-free. This is separate from the age 59½ rule. You need both: you must be 59½ or older, and the Roth IRA must have been open for at least five years.

The five-year clock starts on January 1 of the year you make your first Roth conversion, not the date of the conversion itself. If you convert on December 31, 2024, the five-year period ends on January 1, 2029. If you convert on January 1, 2025, the five-year period also ends on January 1, 2029.

You can withdraw the amount you converted (the principal) anytime without penalty or taxes, even before five years have passed. You can only not withdraw the earnings without taxes and penalty until five years have passed and you are 59½.

Deciding whether a conversion makes sense

A Roth conversion is worth considering if you expect to be in a higher tax bracket in retirement than you are now, or if you want to leave tax-information programs to heirs. It also makes sense if you have a year with unusually low income — a job loss, sabbatical, or early retirement before you start taking Social Security — because you will owe less tax on the conversion.

A conversion usually does not make sense if you are in a high tax bracket now and expect to be in a lower one in retirement. You would be paying taxes at a high rate today to avoid taxes at a lower rate later, which costs you money.

You can also do a partial conversion: convert $20,000 one year and $30,000 the next year, spreading the tax bill across multiple years and potentially staying in a lower bracket each year. This gives you flexibility to convert more in low-income years and less in high-income years.

Frequently Asked Questions

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

Yes, through a process called a recharacterization. You have until the tax filing important date (usually April 15 of the following year, plus extensions) to recharacterize the conversion back to a traditional IRA. You must file Form 8606 with your tax return to report the recharacterization. This is useful if the market drops after you convert and you want to avoid paying taxes on money that is now worth less.

What happens to my 401(k) match if I convert while still employed?

Your employer match is not affected by a conversion. The match goes into your 401(k) as usual. A conversion only moves money that is already in your 401(k) to a Roth IRA; it does not change how your employer contributes going forward.

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

No. You can convert part of your 401(k) in one year and the rest later, or convert some and leave the rest in the 401(k). Each conversion is a separate taxable event, so you can spread conversions across multiple years to manage your tax bracket.

Can I convert a 401(k) if I am still working at that company?

Only if your plan allows in-service conversions. Ask your plan administrator. If your plan does not allow it, you can wait until you leave the company, or you can roll the 401(k) to an IRA at another financial institution and convert from there.

What if I need the money before age 59½?

You can withdraw the amount you converted (the principal) anytime without penalty. You cannot withdraw the earnings without taxes and a 10% penalty unless you are 59½ and the account has been open five years. This is one reason conversions work better if you do not expect to need the money soon.