How to Convert a 401(k) to a Roth IRA

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

A Roth conversion means taking money from your 401(k) and moving it into a Roth IRA. The IRS allows this, but treats the money you convert as income in that tax year. If you convert $50,000, you'll owe federal income tax on $50,000 of additional income — the amount depends on your tax bracket and state taxes. After the conversion is complete and taxes are paid, the money grows tax-free in the Roth IRA, and you can withdraw it tax-free in retirement.

The conversion process itself is straightforward: you contact your 401(k) plan administrator, request a direct rollover to a Roth IRA, and the money moves between accounts. The hard part is deciding whether the tax bill is worth it, and timing it so you don't push yourself into a higher tax bracket.

Key Takeaways

A Roth conversion requires you to pay income tax on the full amount you move in the year you convert, which can be a large tax bill.
You must have access to your 401(k) — typically this means you've left your job, reached age 59½, or your plan allows in-service conversions.
A direct rollover from your 401(k) plan to a Roth IRA avoids the 60-day rule and withholding complications that come with taking the money yourself.
Converting makes the most sense if you expect to be in a higher tax bracket in retirement, or if you want to lock in a lower tax rate now.
You cannot undo a Roth conversion after 2017, so the decision is permanent once the tax year closes.

When you can convert a 401(k) to a Roth IRA

You need a reason to access your 401(k) money before retirement. The most common situation is leaving your job — once you separate from your employer, you can roll your 401(k) into a Roth IRA at any time. You don't have to wait until you're 59½.

If you're still employed, some 401(k) plans allow in-service conversions, which means you can convert while still working for that employer. Ask your plan administrator whether your plan permits this. A few plans also allow conversions after you reach age 59½, even if you haven't left the job.

If you've already left your job and your old 401(k) is sitting with your former employer, you can convert it when ready. If you rolled it into a traditional IRA at a previous time, you can convert that traditional IRA to a Roth IRA instead.

How the tax bill works

The IRS taxes a Roth conversion as ordinary income in the year you convert. If you convert $40,000, the IRS adds $40,000 to your taxable income for that year. Your tax bill depends on your tax bracket — if you're in the 22% federal bracket, you'll owe roughly $8,800 in federal tax, plus any state income tax your state charges.

This matters because converting a large amount can push you into a higher tax bracket. If you earn $70,000 and convert $50,000, the IRS treats your income as $120,000 for that year. The extra $50,000 may be taxed at a higher rate than your normal income.

You pay the tax from your own money — not from the 401(k) being converted. If you use money from the 401(k) to pay the tax bill, that money counts as a withdrawal and is taxed again. Most people pay the tax from a savings account or checking account to avoid this double tax.

The direct rollover process

Contact your 401(k) plan administrator and ask for a direct rollover to a Roth IRA. This is the cleanest method because the money moves straight from your 401(k) custodian to your Roth IRA custodian — you never touch it. You won't face the 60-day rule (which requires you to deposit money within 60 days or it counts as a withdrawal), and the plan won't withhold taxes from the amount.

You'll need to provide the plan administrator with your Roth IRA account details: the custodian name, your account number, and the routing information. The administrator will initiate the transfer. This usually takes one to two weeks.

Once the money lands in your Roth IRA, it's converted. You don't need to do anything else. The tax bill arrives when you file your tax return for that year.

What happens if you take the money yourself

If you withdraw the money from your 401(k) instead of doing a direct rollover, the plan administrator withholds 20% for federal taxes automatically. If you convert $50,000, you receive $40,000 and the plan sends $10,000 to the IRS. You then have 60 days to deposit the full $50,000 into a Roth IRA — but you only have $40,000 in hand.

To complete the conversion, you'd need to deposit $50,000 from your own money. The $10,000 that was withheld counts as a distribution, not a conversion, so you owe tax on it twice: once as a distribution, and again when you file your return and the withholding doesn't cover your actual tax bill. This route is expensive and complicated. A direct rollover avoids all of this.

Pro-rata rule: when you have multiple IRAs

If you have both a traditional IRA and a Roth IRA, or multiple traditional IRAs, the pro-rata rule affects your conversion. The IRS treats all your traditional IRAs as one account for conversion purposes. If 80% of your combined traditional IRA balance is pre-tax money and 20% is after-tax money, then 80% of any conversion is taxed as income.

This rule can make conversions expensive if you have a large traditional IRA balance. For example, if you have a $100,000 traditional IRA and want to convert $10,000 to a Roth, the pro-rata rule means you can't convert just the after-tax portion — you convert $10,000, but $8,000 of it is taxed as income because 80% of your total is pre-tax.

If you have a 401(k) and a traditional IRA, the 401(k) is not counted in the pro-rata calculation — only IRAs are. This is one reason some people roll a traditional IRA back into a 401(k) before converting: it removes the IRA from the pro-rata calculation and lets them convert the 401(k) with a lower tax bill.

Deciding whether a conversion makes sense

A conversion is most useful if you expect your tax rate to be higher in retirement than it is now. If you're in a low-income year — you left your job mid-year, took a sabbatical, or had a business loss — converting during that year means paying tax at a lower rate. You lock in that rate, and the money grows tax-free forever.

A conversion also makes sense if you want to reduce your required minimum distributions (RMDs) in retirement. Traditional IRAs force you to withdraw a certain amount each year starting at age 73. A Roth IRA has no RMDs during your lifetime. Converting reduces the size of your traditional IRA, which lowers your future RMDs and the taxes they trigger.

A conversion does not make sense if you're in a high-income year or if you expect to be in a lower tax bracket in retirement. If you're working and earning well, converting adds a large tax bill on top of your regular income. If you expect to retire with little income, you'll pay less tax by leaving the money in a traditional IRA and withdrawing it in retirement at a lower rate.

After the conversion: what you can and cannot do

Once money is in a Roth IRA, you can leave it there to grow tax-free. You can withdraw contributions (the money you put in) at any time without tax or penalty. Earnings (the growth) can be withdrawn tax-free after age 59½ and if the account has been open for at least five years.

You cannot undo a Roth conversion after the tax year closes. Before 2018, the IRS allowed recharacterizations — a way to reverse a conversion if the market dropped and you regretted it. That option ended. Once you file your tax return for the year you converted, the conversion is permanent. If the market drops after you convert, you're stuck with the tax bill even though the account is now worth less.

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 a traditional IRA or with your former employer. This lets you spread the tax bill over multiple years. For example, you could convert $20,000 one year and $20,000 the next year, paying tax in smaller chunks.

What if my 401(k) has employer matching money in it?

Employer matching is treated the same as your own contributions — it's pre-tax money, so converting it triggers a tax bill. You can't separate employer money from employee money during a conversion. The entire balance converts under the pro-rata rule if you have other IRAs.

Can I convert a 401(k) if I'm still working for that employer?

Only if your plan allows in-service conversions. Ask your plan administrator or HR department. Some plans permit this, others don't. If your plan doesn't allow it, you must wait until you leave the job or reach age 59½.

What if I convert and then the market drops?

You still owe the tax bill based on the value when you converted, even if the account is worth less now. You cannot reverse the conversion. This is why some people convert during market downturns — the tax bill is lower because the account value is temporarily reduced.

Does a Roth conversion affect my Social Security or Medicare premiums?

Yes. A conversion increases your taxable income for that year, which can affect your Medicare premiums (IRMAA) and the taxation of your Social Security benefits. If you're near retirement, check with a tax professional before converting to understand the full impact on your benefits.

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.