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 money you convert

A rollover from a 401(k) to a Roth IRA is possible and relatively common, but it is not the same as rolling into a traditional IRA. When you move money from a 401(k) into a Roth IRA, the IRS treats it as a conversion. That means you pay ordinary income tax on the full amount you convert in the year you do it — even if you have not touched that money yet. The money then grows tax-free in the Roth IRA, and you can withdraw it tax-free after age 59½ if the account has been open for at least five years.

You do not have to convert your entire 401(k) at once. You can convert part of it and leave the rest in the 401(k), roll part to a traditional IRA, or take a distribution. The choice depends on your current tax bracket, whether you expect your income to be higher or lower in the future, and how much tax you can afford to pay upfront.

Key Takeaways

Converting a 401(k) to a Roth IRA requires you to pay income tax on the amount converted in that tax year, but the money then grows and withdraws tax-free.
You can do a direct rollover (trustee-to-trustee transfer) or an indirect rollover, though direct is simpler and avoids the 60-day important date risk.
You must have earned income in the year you convert, and there is no income limit to convert — anyone can do a Roth conversion regardless of salary.
Converting a large amount in one year can push you into a higher tax bracket, so some people spread conversions over multiple years.
If you have a traditional IRA, SEP IRA, or straightforward IRA, the pro-rata rule may explore and complicate your conversion; consult a tax professional before converting.

Direct rollover versus indirect rollover

A direct rollover means your 401(k) plan administrator sends the money straight to the Roth IRA custodian (usually a bank or brokerage). You never touch the money. This is the cleanest method because there is no 60-day window and no withholding requirement. The IRS does not count it as a distribution to you, only as a conversion.

An indirect rollover means the 401(k) plan sends you a check or deposits the money into your bank account. You then deposit it into the Roth IRA yourself. The IRS gives you 60 days to complete the deposit. If you miss that important date, the money is treated as a taxable distribution and you may owe a 10% early withdrawal penalty if you are under 59½. Additionally, the 401(k) plan may withhold 20% of the amount for federal taxes, which you will need to make up from your own funds to deposit the full amount into the Roth IRA.

Most people choose direct rollover because it removes the risk of missing the important date and avoids the withholding complication.

The tax bill you owe on conversion

When you convert a 401(k) to a Roth IRA, you owe federal income tax on the amount converted. The tax is calculated at your ordinary income tax rate for that year. If you convert $50,000, you add $50,000 to your taxable income for the year. If you are in the 24% tax bracket, you will owe approximately $12,000 in federal tax on that conversion.

Some states also tax Roth conversions as income. Check your state's rules before you convert, because the state tax bill can be significant depending on where you live.

You pay this tax when you file your tax return for the year of the conversion. You do not pay it upfront to the IRA custodian. Many people set aside money from their paycheck or savings to cover the tax bill so they do not have to withdraw money from the IRA itself.

Whether you can convert depends on your 401(k) plan rules

Your employer's 401(k) plan document controls whether you can roll over money while you are still employed. Some plans allow in-service rollovers (conversions while you work there), and some do not. You need to contact your plan administrator or check your plan's summary of benefits to find out.

If you have left your job, you can almost always roll over your 401(k) to a Roth IRA. The money is no longer subject to the employer's plan rules once you are separated from service.

If your plan does allow in-service conversions, you can convert any amount. There is no annual limit on Roth conversions, unlike contributions to a Roth IRA (which are capped at $7,000 per year for 2024, or $8,000 if you are 50 or older).

The pro-rata rule and why it matters if you have other IRAs

If you have a traditional IRA, SEP IRA, or straightforward IRA in addition to your 401(k), the pro-rata rule applies to your conversion. This rule says that when you convert any pre-tax money to a Roth IRA, you must treat all of your IRAs (but not your 401(k)) as one pool for tax purposes.

For example: suppose you have a traditional IRA with $100,000 in pre-tax money and a Roth IRA with $50,000 in after-tax contributions. You want to convert $50,000 from your 401(k) to a Roth IRA. The IRS will calculate the pro-rata percentage: $100,000 pre-tax divided by $150,000 total = 66.67% pre-tax. You will owe tax on 66.67% of the $50,000 you convert, or about $33,335, even though the $50,000 came from your 401(k).

This rule can make conversions much more expensive if you have significant pre-tax IRA balances. Some people roll their traditional IRA balances into their 401(k) plan (if the plan allows it) before converting, which removes those balances from the pro-rata calculation. You should consult a tax professional before converting if you have multiple IRAs.

Timing and tax bracket considerations

The year you convert matters because the conversion amount is added to your income for that year. If you convert $100,000 in a year when you already have $150,000 in wages, you are reporting $250,000 in taxable income. If you convert in a year when you have no other income, the tax bill is lower.

Some people convert in years when they expect lower income — for example, the year they retire before Social Security starts, or a year between jobs. Others spread conversions over multiple years to stay in a lower tax bracket each year.

You cannot undo a conversion after you file your tax return for that year (the IRS eliminated the recharacterization option in 2018). So it is worth thinking through the tax impact before you convert.

Steps to convert your 401(k) to a Roth IRA

First, open a Roth IRA with a bank, brokerage, or other IRA custodian if you do not already have one. You will need to provide your name, address, Social Security number, and employment information.

Second, contact your 401(k) plan administrator and ask for a direct rollover form. Tell them you want to roll over funds to a Roth IRA (not a traditional IRA). Provide the Roth IRA custodian's name and account number. The plan will send the money directly to that custodian.

Third, the money will arrive in your Roth IRA, usually within one to two weeks. The custodian will send you a confirmation. The 401(k) plan will also send you a Form 1099-R for tax reporting.

Fourth, when you file your tax return for that year, you will report the conversion on Form 8606 (Nondeductible IRAs). This form tells the IRS how much you converted and how much tax you owe on it.

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 plan, roll part to a traditional IRA, or take a distribution. Each conversion is reported separately on your tax return. Some people convert in chunks over several years to spread out the tax bill.

What happens if I miss the 60-day important date on an indirect rollover?

If you do not deposit the money into the Roth IRA within 60 days, it is treated as a taxable distribution. You will owe income tax on the full amount, and if you are under 59½, you will also owe a 10% early withdrawal penalty. The only exception is if the IRS grants you a waiver for circumstances beyond your control, which is rare.

Can I convert a 401(k) loan to a Roth IRA?

No. A loan is not part of your vested balance, so you cannot roll it over. If you have an outstanding 401(k) loan when you leave your job, the plan will typically require you to repay it within 60 days or it becomes a taxable distribution.

Will converting a 401(k) to a Roth IRA affect my Social Security benefits?

The conversion itself does not affect your Social Security benefits. However, the conversion increases your taxable income for that year, which could affect how much of your Social Security is taxed if you are already receiving benefits. Consult a tax professional if you are on Social Security and considering a large conversion.

Can I convert employer stock from my 401(k) to a Roth IRA?

Yes, but there is a special rule called net unrealized appreciation (NUA) that may save you money on taxes. If you have highly appreciated employer stock in your 401(k), you may be able to distribute it directly to a taxable brokerage account and defer the tax on the appreciation. This is complex and requires professional guidance.

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.