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

A rollover from a 401(k) to a Roth IRA is allowed by the IRS, but it works differently than rolling over to a traditional IRA. When you move pre-tax money from a 401(k) into a Roth IRA, that money becomes taxable income in the year you do the conversion. You will report the full amount on your tax return and pay tax at your ordinary income rate. There is no dollar limit on how much you can convert, but the tax bill can be substantial.

The main reason people do this is to lock in lower tax rates now, or to move money into an account with no required withdrawals later. But you need to understand the tax hit before you start the process.

Key Takeaways

  • You can roll over money from a 401(k) to a Roth IRA at any age, but the full amount becomes taxable income in that tax year.
  • If your 401(k) contains both pre-tax and after-tax contributions, the IRS pro-rata rule may require you to pay tax on a portion of the after-tax money too.
  • You have 60 days from the time you receive a distribution to deposit it into the Roth IRA, or the IRS treats it as a withdrawal and you owe a 10% penalty if you are under 59½.
  • A direct rollover (401(k) trustee sends money straight to the Roth IRA) avoids the 60-day clock and the 20% withholding that applies to indirect rollovers.
  • You cannot undo a Roth conversion after the tax year ends, so calculate your tax liability before you commit.

How the tax bill works when you convert

When you convert a 401(k) to a Roth IRA, the IRS treats the money as ordinary income. If you convert $50,000, you add $50,000 to your taxable income for that year. You pay tax at whatever rate applies to that income bracket. For example, if you are single and your other income puts you in the 24% federal bracket, you will owe roughly $12,000 in federal tax on a $50,000 conversion (plus state tax if your state has income tax).

The tax is due when you file your return the following April. You can pay it from the Roth IRA itself, but that reduces the amount you have invested. Most people pay the tax from other savings so the full conversion amount stays in the Roth to grow tax-free.

If you are still working and your employer's 401(k) plan allows in-service conversions, you may be able to convert while still employed. If you have left the job, you can convert after you receive the distribution. Either way, the tax bill is the same.

The pro-rata rule: when you have both pre-tax and after-tax money

If your 401(k) contains a mix of pre-tax contributions (the money that was deducted from your paychecks) and after-tax contributions (money you put in after paying tax on it), the IRS pro-rata rule applies. You cannot pick and choose which dollars to convert. Instead, the IRS calculates what percentage of your total 401(k) balance is pre-tax and what percentage is after-tax, and applies that ratio to your conversion.

For example: suppose your 401(k) has $100,000 in pre-tax money and $25,000 in after-tax contributions, for a total of $125,000. That is 80% pre-tax and 20% after-tax. If you convert $50,000, the IRS treats $40,000 as pre-tax (and taxable) and $10,000 as after-tax (and not taxable). You still owe tax on the $40,000 portion.

This rule applies to all your IRAs and 401(k)s combined, not just the one account you are converting from. If you have a traditional IRA with pre-tax money, that counts toward the calculation too. This is one reason some people move their traditional IRA balance into their employer's 401(k) plan before converting — it removes that balance from the pro-rata calculation.

Direct rollover versus indirect rollover

You have two ways to move the money: a direct rollover or an indirect rollover. The difference matters for taxes and timing.

In a direct rollover, your 401(k) plan trustee sends the money directly to the Roth IRA custodian. You never touch the money. There is no withholding, no 60-day important date, and no risk of accidentally triggering a penalty. This is the cleanest route and the one most tax professionals recommend.

In an indirect rollover, the 401(k) plan sends you a check. The plan is required to withhold 20% for federal taxes. If you convert $50,000, you receive a check for $40,000 and the plan sends $10,000 to the IRS. You then have 60 days to deposit the $40,000 into the Roth IRA. But here is the catch: you still owe tax on the full $50,000. If you cannot deposit the $10,000 that was withheld from your own pocket, that $10,000 is treated as a withdrawal, and you owe a 10% penalty on it if you are under 59½. You also have to report the $10,000 as income on your tax return.

The 60-day window is strict. If you miss it, the IRS treats the money as a distribution, not a rollover. You owe tax and penalties on the full amount.

Age limits and early withdrawal penalties

You can convert a 401(k) to a Roth IRA at any age. There is no minimum age requirement. However, if you are under 59½ and you take money out of your 401(k) before you are may be able to access to receive it, you normally owe a 10% early withdrawal penalty on top of income tax.

A conversion is treated as a distribution, so the early withdrawal penalty applies unless an exception covers you. Common exceptions include separation from service at 55 or older, disability, or a series of substantially equal periodic payments (SEPP). If none of these explore and you are under 59½, you will owe the 10% penalty on the amount you convert.

Once the money is in the Roth IRA, the five-year rule applies. You must wait five years from the year of conversion before you can withdraw the converted amount tax-free. If you withdraw before five years have passed, you owe tax and the 10% penalty on the earnings, though not on the principal you converted.

Timing and tax planning before you convert

A conversion is permanent once the tax year ends. You cannot undo it or recharacterize it back to a traditional IRA. This means you should calculate your tax bill before you commit. If you convert in a year when your income is unusually low — for example, you took unpaid leave or you retired mid-year — the tax hit may be smaller than in a normal year.

Some people spread conversions over multiple years to keep their income in a lower bracket each year. Others convert in a year when they know they will have a large loss or deduction that offsets the conversion income. A tax professional can model different scenarios and tell you what your bill would be.

You also need to think about Medicare premiums if you are close to age 65. The IRS uses your modified adjusted gross income (MAGI) from two years prior to set your Medicare Part B and Part D premiums. A large conversion can push your MAGI higher and increase your premiums for the following two years.

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

First, contact your 401(k) plan administrator and ask whether the plan allows conversions. Some plans do not. If yours does, ask whether you can do a direct rollover. Provide the Roth IRA custodian's name, address, and your account number.

The plan will send the money directly to the Roth IRA. This usually takes one to two weeks. Once the money arrives, the custodian will send you a confirmation. Keep this for your records.

On your tax return the following year, you will report the conversion on Form 8606 (Nondeductible IRAs). This form tells the IRS how much you converted and how much is taxable. If you had an indirect rollover with withholding, you will also report the withheld amount as a payment toward your tax bill.

If you converted after leaving your job, you can also roll over the remaining balance in your 401(k) to a traditional IRA if you want to consolidate accounts. This does not trigger a tax bill because you are moving pre-tax money to another pre-tax account.

Frequently Asked Questions

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

Yes, if your employer's plan allows in-service conversions. Not all plans do. Contact your plan administrator to ask. If your plan does not allow it, you can wait until you leave the job to convert.

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

The IRS treats the money as a distribution, not a rollover. You owe income tax on the full amount and a 10% early withdrawal penalty if you are under 59½. You cannot fix this by depositing the money later.

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

No. You can convert part of your balance in one year and the rest in another year, or not at all. Each conversion is a separate transaction and generates its own tax bill. This lets you spread the tax impact over multiple years if you choose.

Will a conversion affect my Social Security benefits?

A Roth conversion does not directly affect Social Security, but it increases your income in the year you convert. If you are under full retirement age and still working, higher income can reduce your benefits. If you are collecting and not working, the conversion itself does not reduce benefits, but the higher income may affect your tax situation.

Can I convert money from a 401(k) loan?

No. A 401(k) loan is a separate transaction from your account balance. You cannot convert a loan. You can only convert actual contributions and earnings that are in the account.