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

A Roth conversion lets you take money from your 401(k) and deposit it into a Roth IRA. The money grows tax-free in the Roth from that point forward, and you can withdraw it tax-free in retirement. The catch is that you pay ordinary income tax on the full amount you convert in the year you do it — so a $50,000 conversion means you owe tax on an extra $50,000 of income that year.

You can do this conversion at any age, and there is no annual limit on how much you can convert. You do not have to be working or earning income. The main decision is whether paying the tax now makes sense for your situation, since you are trading a tax bill today for tax-free growth and withdrawals later.

Key Takeaways

  • Converting a 401(k) to a Roth IRA requires you to pay income tax on the full amount converted in that tax year, but the money then grows and can be withdrawn tax-free.
  • You can convert at any age and in any amount — there is no annual limit, unlike regular Roth IRA contributions.
  • If your 401(k) contains both pre-tax and after-tax money, the IRS requires you to convert them proportionally, not just the after-tax portion.
  • You must complete the conversion within 60 days of withdrawing the money from your 401(k), or it becomes a taxable distribution instead.
  • A conversion makes the most sense when you expect to be in a lower tax bracket now than in retirement, or when you want to reduce required withdrawals later.

The two ways to move 401(k) money to a Roth IRA

A direct rollover is the simpler route. Your 401(k) plan administrator sends the money straight to your Roth IRA custodian (usually a brokerage like Fidelity, Vanguard, or Schwab). You never touch the money, so there is no withholding and no 60-day important date to worry about. The administrator will report the conversion to the IRS, and you report it on your tax return.

An indirect rollover means the 401(k) plan sends you a check. You then deposit it into your Roth IRA yourself within 60 days. This route has a built-in risk: if you miss the 60-day window, the IRS treats it as a withdrawal, not a conversion. You owe income tax on it plus a 10% penalty if you are under 59½. Also, your 401(k) plan will withhold 20% for federal taxes automatically, so if you convert $50,000, you receive only $40,000. You have to make up the $10,000 from your own money to complete the full conversion, or the $10,000 stays behind as a taxable withdrawal.

Direct rollover is almost always the better choice because it avoids the withholding trap and the 60-day clock.

Understanding the pro-rata rule and after-tax money

If your 401(k) holds both pre-tax money (traditional contributions and employer matches) and after-tax money (contributions you made with after-tax dollars), the IRS does not let you convert only the after-tax portion to a Roth. Instead, you must convert them proportionally.

Here is a real example: suppose your 401(k) balance is $100,000 total — $80,000 pre-tax and $20,000 after-tax. If you convert $50,000, the IRS says $40,000 of it is pre-tax (80% of the total) and $10,000 is after-tax (20% of the total). You owe income tax on the $40,000 pre-tax portion, but not on the $10,000 after-tax portion. This is called the pro-rata rule.

The pro-rata rule applies across all your IRAs and 401(k) plans combined. If you have a traditional IRA with $50,000 in pre-tax money, your 401(k) pro-rata calculation includes that IRA balance too. This can make a conversion much more expensive than it appears at first glance. Some people move their traditional IRA money into their 401(k) plan before converting, to reduce the pro-rata hit — but not all 401(k) plans allow this, so check with your plan administrator first.

When a Roth conversion makes financial sense

A conversion is most useful when your tax bracket is lower now than you expect it to be in retirement. If you are between jobs, took a sabbatical, or had a low-income year, that is a window to convert at a lower tax rate. You pay the tax at your current rate, then the money grows tax-free and comes out tax-free later when you are in a higher bracket.

A conversion also reduces your required minimum distributions (RMDs) in retirement. At age 73, the IRS requires you to withdraw a percentage of your traditional 401(k) and IRA balances each year, whether you need the money or not. Those withdrawals push up your taxable income and can trigger higher Medicare premiums and tax on Social Security. By converting to a Roth now, you shrink the balance subject to RMDs later.

A conversion can also make sense if you expect tax rates to rise in the future, or if you want to leave tax-information programs to heirs. Roth accounts pass to beneficiaries tax-free, whereas traditional 401(k) money does not.

The downside is that the conversion tax is due in the year you do it, even if you do not need the money. If you convert $100,000 and land in the 24% federal tax bracket, you owe $24,000 in federal tax alone — plus state tax in most states, plus the tax on any other income you earned that year. Make sure you have the cash to pay the bill without borrowing or tapping retirement savings.

The steps to convert your 401(k) to a Roth IRA

First, open a Roth IRA if you do not have one. You can open one at any brokerage — Fidelity, Vanguard, Schwab, and many others offer them. There is no cost to open an account.

Second, contact your 401(k) plan administrator (the company that runs your plan — often a payroll or benefits vendor, not your employer directly). Ask them to do a direct rollover to your Roth IRA. Provide them with your Roth IRA account number and the custodian's contact information. They will send the money directly to the Roth custodian.

Third, confirm with your Roth IRA custodian that the money arrived. This usually takes 5 to 10 business days. The custodian will send you a confirmation and a Form 1099-R showing the rollover.

Fourth, report the conversion on your tax return. You will receive a Form 1099-R from your 401(k) plan and another from your Roth custodian. You report these on IRS Form 8606 (Nondeductible IRAs) and include it with your tax return. Your tax software will usually walk you through this, or a tax preparer can handle it.

Tax reporting and what to expect on your return

The IRS will receive Forms 1099-R from both your 401(k) plan and your Roth custodian. These forms report the rollover amount. You must report it on Form 8606 when you file your tax return, even if you do not owe tax on it (for example, if the entire amount was after-tax contributions).

If you do a direct rollover, the 401(k) plan will report the full amount as a rollover, not a distribution. This tells the IRS it was not a taxable withdrawal. Your Roth custodian will also report it as a rollover. As long as both forms match and you report it correctly on Form 8606, there should be no issue.

If you do an indirect rollover and miss the 60-day important date, the 401(k) plan will report it as a distribution, and you will owe tax on the full amount plus the 10% penalty if you are under 59½. The IRS will see the mismatch between what you report and what the plan reported, and you may receive a notice asking you to explain.

Common mistakes to avoid

The biggest mistake is doing an indirect rollover and missing the 60-day important date. Once the important date passes, the IRS does not grant extensions. Use a direct rollover instead.

Another mistake is forgetting about the pro-rata rule. If you have a traditional IRA with pre-tax money, converting your 401(k) will trigger tax on a portion of the conversion you did not expect. Calculate your pro-rata percentage before you convert, or move your traditional IRA into your 401(k) first if your plan allows it.

A third mistake is converting too much in one year and pushing yourself into a higher tax bracket than you intended. Conversions are permanent — you cannot undo them. If you are unsure about the tax impact, do a smaller conversion first or talk to a tax preparer before you commit.

Finally, do not assume you can convert only the after-tax portion of your 401(k). The pro-rata rule applies, and you will owe tax on the pre-tax portion proportionally.

Frequently Asked Questions

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

Yes, you can convert at any age and while still employed, as long as you have left that employer's 401(k) plan or your plan allows in-service distributions. Some plans do allow conversions while you are still working there; others do not. Check with your plan administrator.

What if I convert and then the market drops — can I undo it?

No, conversions cannot be reversed. Once the money is in the Roth, it stays there. If the market drops after you convert, you have paid tax on a higher value than the account is now worth, but you cannot get the tax back. This is a reason to think carefully before converting a large amount.

Do I have to convert my entire 401(k) balance?

No, you can convert part of it. You can do multiple conversions over several years if you want to spread the tax bill across different tax years. This is called a "ladder" conversion and can help you stay in a lower bracket each year.

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

Employer match money is pre-tax, so it counts toward your pro-rata calculation. If you convert, a portion of the conversion will be taxed based on the ratio of pre-tax to after-tax money in your entire 401(k) balance, including the match.

Can I convert if I have a Roth 401(k) at my current job?

Yes, but the pro-rata rule still applies to any pre-tax money in any 401(k) or IRA you own. A Roth 401(k) does not change the calculation — the IRS looks at all your retirement accounts combined.