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

A Roth conversion lets you move money from a traditional 401(k) into a Roth IRA. The money grows tax-free in the Roth account from that point forward, and you can withdraw earnings tax-free in retirement if you follow the rules. The catch is that you pay income tax on the full amount you convert in the year you do it — as if that money were regular income that year.

You can do this conversion at any age and at any income level. There is no income limit that blocks you from converting, unlike the income limits that prevent high earners from contributing directly to a Roth IRA. You do not have to wait until you leave your job, though the process is often simpler after you separate from your employer.

Key Takeaways

  • You pay ordinary income tax on the full conversion amount in the year you convert, which can push you into a higher tax bracket.
  • After conversion, the money sits in a Roth IRA and grows tax-free; you can withdraw earnings penalty-free at age 59½ if the account has been open at least five years.
  • You can convert while still employed, but it is usually easier after you leave the job and roll the 401(k) to an IRA first.
  • If you have other traditional IRAs or SEP IRAs, the IRS counts all of them together when calculating the tax bill on your conversion.

How the conversion process works

The most straightforward path is a two-step process. First, roll your 401(k) into a traditional IRA at a bank, brokerage, or investment firm. Second, convert that traditional IRA into a Roth IRA. You can do both steps at the same institution, and many firms have online forms to handle this.

Some 401(k) plans allow an in-service conversion, meaning you convert directly from the 401(k) to a Roth IRA without leaving your job. Ask your plan administrator whether your plan permits this. If it does, you can skip the intermediate traditional IRA step. If it does not, you must wait until you leave the job, retire, or reach age 59½ (depending on your plan's rules) before you can roll the money out.

The actual mechanics are straightforward: you contact the financial institution where you want the Roth IRA to live, provide your 401(k) account details, and sign paperwork authorizing the transfer. The institution handles the rest. The money moves directly from the 401(k) custodian to the Roth IRA custodian — this is called a trustee-to-trustee transfer and avoids the 60-day rollover window that applies if you take the money yourself.

The tax bill you owe on 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. This can bump you into a higher tax bracket and increase what you owe in federal income tax, state income tax (in states that have it), and potentially Medicare premiums if you are on Medicare.

The tax is due when you file your return for the year of conversion. You do not pay it upfront; you settle it on April 15 of the following year. However, if the conversion pushes your income high enough, you may want to make estimated tax payments during the year to avoid penalties.

If you have other traditional IRAs, SEP IRAs, or straightforward IRAs, the IRS uses a pro-rata rule that complicates the math. The rule treats all your traditional IRAs as one pool. If that pool contains both pre-tax money (contributions you deducted) and after-tax money (contributions you did not deduct), the IRS calculates what percentage is pre-tax. You pay tax on that same percentage of your conversion. This can make a conversion much more expensive if you have a large traditional IRA balance alongside the 401(k) you want to convert.

When conversion makes sense

People often convert when their income is temporarily low — for example, in the year they leave a job before starting a new one, or in early retirement before they begin taking Social Security. A lower income year means a lower tax bill on the conversion.

Conversion also makes sense 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. Roth IRAs have no required minimum distributions during your lifetime, so you can let the money grow untouched if you do not need it.

Some people convert in small amounts over several years to spread the tax bill across multiple years and stay in a lower bracket each year. This is called a ladder conversion or serial conversion.

The five-year rule for converted money

Money you convert from a traditional 401(k) to a Roth IRA is subject to a five-year holding period before you can withdraw the earnings tax-free. The five-year 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.

You can withdraw the amount you converted (the principal) at any time without penalty. You can only withdraw the earnings tax-free and penalty-free if you are age 59½ or older and the five-year period has passed. If you withdraw earnings before age 59½, you owe income tax on those earnings plus a 10% penalty, with limited exceptions.

This five-year rule applies separately to each conversion. If you convert $20,000 in 2024 and another $20,000 in 2025, each conversion has its own five-year clock.

Roth conversions and your other accounts

A conversion does not affect your ability to contribute to a Roth IRA directly in future years, as long as your income stays below the annual income limits for direct contributions. The conversion itself has no income limit.

If you are taking distributions from a traditional 401(k) or IRA, a conversion in the same year increases your total taxable income for that year. This can affect your tax bracket, Medicare premiums, and whether you owe tax on Social Security benefits.

If you are still working and your employer offers a 401(k), converting does not change your ability to contribute to that plan. You can convert a 401(k) from a previous employer while contributing to your current employer's 401(k) in the same year.

Undoing a conversion: recharacterization rules

You cannot undo a Roth conversion the way you could in the past. Before 2018, you could recharacterize a conversion — move the money back to a traditional IRA and avoid the tax bill if the account lost value or if you changed your mind. That option is no longer available.

Once you convert, the conversion is permanent. You pay tax on the amount converted in that year, even if the investments lose value afterward. This is one reason some people convert in small amounts: if the market drops sharply after conversion, they have not locked in a large tax bill on a smaller amount of money.

Frequently Asked Questions

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

No. You can convert part of your 401(k) and leave the rest in the traditional account. You can also do multiple partial conversions over several years. Each conversion is taxed separately in the year it occurs.

What happens if my 401(k) has company stock in it?

Company stock converts like any other asset. However, there is a special rule called net unrealized appreciation (NUA) that can save you tax if you have highly appreciated company stock. Consult a tax professional before converting a 401(k) that holds company stock, because the NUA strategy may be better than a straight conversion.

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

Only if your plan permits in-service conversions. Check with your plan administrator. If your plan does not allow it, you must wait until you leave the job, retire, or reach age 59½ before you can roll the money out and convert it.

Will a conversion affect my Social Security benefits?

A conversion increases your taxable income for that year, which can trigger taxation of your Social Security benefits if your combined income crosses the threshold. If you are close to that threshold, the extra income from a conversion might push you over it.

What if I made after-tax contributions to my 401(k)?

After-tax contributions (money you put in with dollars you already paid tax on) are not taxed again when you convert. However, if your plan holds both pre-tax and after-tax money, the pro-rata rule applies to the conversion. Work with a tax professional to calculate the taxable portion correctly.