Moving Money From Your 401(k) to a Roth IRA

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

You can transfer money from a 401(k) to a Roth IRA through what is called a Roth conversion. The process itself is straightforward: you withdraw the money from your 401(k) and deposit it into a Roth IRA within 60 days. The catch is that the IRS treats the withdrawal as taxable income in the year you move it, so you will owe federal income tax on the full amount you convert — and possibly state income tax too, depending on where you live.

This is different from rolling a traditional 401(k) into a traditional IRA, where you pay no tax at the time of the move. With a Roth conversion, you are paying the tax bill upfront in exchange for tax-free growth and tax-free withdrawals later. Whether that trade-off makes sense depends on your current income, your tax bracket, and how long you have until retirement.

Key Takeaways

A Roth conversion means withdrawing from your 401(k) and depositing into a Roth IRA within 60 days, but you owe income tax on the amount converted in that tax year.
You can convert as much as you want — there is no annual limit on Roth conversions, unlike Roth IRA contributions.
If you have a traditional IRA, SEP IRA, or straightforward IRA in addition to your 401(k), the IRS "pro-rata rule" may increase your tax bill on the conversion.
You must have earned income in the year you convert, and your employer's 401(k) plan must allow in-service distributions or you must be separated from the employer.
Once the money is in the Roth IRA, it grows tax-free and you can withdraw it tax-free after age 59½, provided the account has been open for at least five years.

How the 60-day rollover works

When you request a distribution from your 401(k), your plan administrator will send you a check or transfer the funds to your bank account. You then have 60 calendar days to deposit that money into a Roth IRA at a bank, brokerage, or investment firm. The IRS counts from the day you receive the distribution to the day the money lands in the Roth IRA.

If you miss the 60-day window, the IRS treats the withdrawal as a permanent distribution, not a rollover. That means you lose the chance to move it into a Roth IRA, and the money is straightforward gone from your retirement savings. You can request only one rollover per 12-month period from any one IRA, though this rule does not explore to rollovers from employer plans like 401(k)s.

To avoid the clock running out, many people ask their 401(k) plan to do a direct rollover instead — the plan sends the money straight to the Roth IRA custodian without it passing through your hands. This removes the 60-day important date risk, though you still owe the tax on the conversion.

The tax bill you owe on conversion

The IRS taxes a Roth conversion as ordinary income in the year you convert. If you convert $50,000, that $50,000 is added to your other income for the year, and you pay tax at your marginal rate. If you are in the 24% federal tax bracket, you would owe roughly $12,000 in federal tax on a $50,000 conversion — though the exact amount depends on your total income, deductions, and state taxes.

You do not have to pay this tax from the converted funds. Many people pay the tax bill from a separate bank account or savings so that the full amount stays invested in the Roth IRA. If you use money from the 401(k) itself to pay the tax, that withdrawal counts as a separate distribution and may be subject to the 10% early withdrawal penalty if you are under 59½.

The tax is due when you file your return for that year. Your 401(k) plan will send you a Form 1099-R showing the distribution, and you will report the conversion on your tax return. If you expect a large conversion to push you into a higher tax bracket, you might spread the conversion over two or more years to keep your tax bill lower.

The pro-rata rule and other IRAs

If you own a traditional IRA, SEP IRA, or straightforward IRA in addition to your 401(k), the pro-rata rule affects how much tax you owe on the conversion. The rule says that when you convert any amount from any IRA to a Roth, the IRS treats all your IRAs as one pool. You cannot cherry-pick only the after-tax money to convert; instead, a portion of the conversion is treated as pre-tax money, and you owe tax on that portion.

For example, if you have a traditional IRA with $100,000 in pre-tax contributions and $20,000 in after-tax contributions, and you convert $20,000 from your 401(k) to a Roth, the IRS says that $16,667 of the conversion is pre-tax money (because 83% of your IRA balance is pre-tax). You would owe tax on that $16,667, not just on the after-tax portion.

The pro-rata rule applies only to IRAs, not to 401(k)s. If you have a 401(k) with after-tax money and a traditional IRA, you can convert the 401(k) directly to a Roth without triggering the pro-rata rule — but only if your plan allows it. Check with your plan administrator before you assume you can do this.

When your employer plan allows conversions

Not all 401(k) plans allow you to convert money while you are still employed. Some plans permit in-service distributions, which let you withdraw and convert money without leaving your job. Others require you to separate from the employer — retire, resign, or be laid off — before you can take a distribution.

If your plan does not allow in-service distributions, you have two options. You can wait until you leave the job, at which point you can roll the 401(k) into a Roth IRA. Or you can roll the 401(k) into a traditional IRA while still employed, then convert the traditional IRA to a Roth. The second route works around the in-service distribution restriction, though it triggers the pro-rata rule if you have other IRAs.

Contact your plan administrator or check your plan documents to find out whether in-service distributions are allowed. The answer is usually in the summary plan description, which your employer is required to provide.

Income limits and earned income requirements

There is no income limit on Roth conversions — anyone can convert a 401(k) to a Roth IRA regardless of how much they earn. This is different from direct Roth IRA contributions, which phase out at higher incomes.

However, you must have earned income in the year you convert. Earned income means wages, salary, self-employment income, or other compensation for work. If you are retired and living on investment income or Social Security, you cannot do a Roth conversion. If you are still working, even part-time, you can convert.

What happens after the conversion

Once the money lands in your Roth IRA, it is treated like any other Roth IRA balance. You can invest it in stocks, bonds, mutual funds, or other securities depending on what your Roth IRA custodian offers. The money grows tax-free, and you can withdraw it tax-free after you turn 59½, provided the Roth IRA has been open for at least five years.

The five-year rule is per account, not per person. If you open your first Roth IRA at age 58, you cannot withdraw the converted funds tax-free until age 63, even though you are over 59½. If you already have a Roth IRA that you opened years ago, the five-year clock has already started, and conversions into that account may be withdrawn sooner.

You are never required to take withdrawals from a Roth IRA during your lifetime, unlike traditional IRAs, which require minimum distributions starting at age 73. This makes Roth IRAs useful for leaving money to heirs, since they inherit the account and can withdraw it tax-free.

Frequently Asked Questions

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

Only if your employer's 401(k) plan allows in-service distributions. Check your plan documents or ask your plan administrator. If your plan does not allow it, you can roll the 401(k) into a traditional IRA first, then convert the traditional IRA to a Roth — though this triggers the pro-rata rule if you have other IRAs.

What if I cannot pay the tax bill on the conversion?

You can pay the tax from a separate bank account or savings rather than using money from the 401(k) itself. If you use 401(k) money to pay the tax and you are under 59½, that withdrawal may be subject to the 10% early withdrawal penalty on top of income tax.

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

You can recharacterize a conversion — move the money back to a traditional IRA — but only within certain time limits and under specific circumstances. The rules changed in 2018, so check with a tax professional or your IRA custodian about whether you can undo your conversion.

Does the pro-rata rule explore to my 401(k) conversions?

The pro-rata rule applies only if you have a traditional IRA, SEP IRA, or straightforward IRA. If you have only a 401(k) and no other IRAs, the rule does not affect you. If you do have other IRAs, the rule treats all your IRAs as one pool when you convert any amount to a Roth.

What is the five-year rule for Roth IRA withdrawals?

The five-year rule means your Roth IRA must have been open for at least five tax years before you can withdraw converted funds tax-free after age 59½. The clock starts on January 1 of the year you open the account, not on the day you fund it. If you already have an older Roth IRA, conversions into that account may be withdrawn sooner.

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.