Converting a 401(k) to a Roth IRA: Steps, Tax Consequences, and Rules

How a 401(k)-to-Roth conversion works

A 401(k)-to-Roth IRA conversion means moving money from your 401(k) into a Roth IRA. You withdraw the funds from your 401(k), pay income tax on the amount you convert in that tax year, and deposit the after-tax money into a Roth IRA. The money then grows tax-free in the Roth account, and you can withdraw earnings without tax once you reach age 59½ and have held the account for at least five years.

The conversion itself is a one-time transaction, not an ongoing transfer. You initiate it through your 401(k) plan administrator and your Roth IRA custodian (often a bank or brokerage). The two institutions do not communicate directly — you coordinate the move, and the IRS tracks it through your tax return.

This is different from a rollover, which moves money from one retirement account to another of the same type (401(k) to 401(k), or traditional IRA to traditional IRA). A conversion changes the account type and tax treatment, which is why the tax bill appears.

Key Takeaways

• You must pay income tax on the full amount you convert in the year you convert it, calculated at your ordinary income tax rate for that year.
• Conversions are available to anyone with a 401(k) and earned income, regardless of how much money you make — there is no income limit for conversions, though there are income limits for direct Roth IRA contributions.
• You have 60 days from the date you receive the 401(k) withdrawal to deposit it into a Roth IRA, or the IRS treats it as a taxable distribution rather than a conversion.
• If you have a traditional IRA, SEP IRA, or straightforward IRA in addition to the 401(k) you are converting, the IRS counts all of those accounts together when calculating how much tax you owe on the conversion.
• Once money is in a Roth IRA, you can withdraw contributions (the amount you put in) at any time tax-free, but withdrawals of earnings before age 59½ trigger a 10% penalty plus income tax unless an exception applies.

The tax bill you owe when you convert

The IRS treats a conversion as income in the year you perform it. If you convert $50,000, you add $50,000 to your taxable income for that year. Your tax bill depends on your total income and your tax bracket — the higher your income that year, the higher the tax rate applied to the conversion.

You do not pay the tax from the 401(k) money itself. Instead, you owe it when you file your tax return. Many people pay it from other savings or a paycheck to avoid reducing the amount they convert. If you use 401(k) money to pay the tax, that additional withdrawal is also taxable and may trigger the 10% early withdrawal penalty if you are under 59½.

The conversion does not reduce your 401(k) balance by the tax amount — it reduces it by the full amount you convert. If you convert $50,000 and owe $12,000 in tax, your 401(k) goes down by $50,000, and you owe $12,000 when you file your return.

Who can convert and when

You can convert a 401(k) to a Roth IRA at any age and at any income level. Unlike direct Roth IRA contributions, which have income limits, conversions have no income ceiling. This is why conversions are often used by high-income earners who cannot contribute directly to a Roth.

You must have earned income in the year you convert — the IRS does not allow conversions from retirement accounts if you have no wages or self-employment income that year. If you are retired and have no income, you cannot convert.

You can convert while you are still employed and your 401(k) is active, or after you leave your job. If you leave your job, you typically have the option to keep the money in your former employer's 401(k), roll it to your new employer's plan (if allowed), or roll it to a traditional IRA. A conversion can happen at any of those points.

The 60-day window and what happens if you miss it

Once you request a withdrawal from your 401(k), you have 60 calendar days to deposit the funds into a Roth IRA. This important date is strict. If the money sits in your bank account on day 61, the IRS does not treat it as a conversion — it treats it as a taxable distribution, and you owe the 10% early withdrawal penalty if you are under 59½.

The 60 days start the day you receive the money, not the day you request it. If your 401(k) plan mails you a check, the clock starts when the check arrives at your address. If the plan deposits it directly to your bank account, the clock starts that day.

The IRS can waive the 60-day important date in limited circumstances — for example, if a bank error or natural disaster prevented you from depositing on time. You would need to file Form 8329 with the IRS and explain the situation. This is rare and requires documentation.

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

If you own a traditional IRA, SEP IRA, or straightforward IRA in addition to the 401(k) you are converting, the IRS applies the pro-rata rule. This rule combines the balance of all your traditional and SEP and straightforward IRAs (but not Roth IRAs) with the amount you are converting, and calculates the tax as if you converted a percentage of the total.

For example: You have a traditional IRA with $100,000 and a 401(k) with $50,000. You want to convert the $50,000 from your 401(k) to a Roth. The IRS treats this as if you converted $50,000 out of a combined $150,000 pool. That is one-third of your total pre-tax IRA money. You owe tax on one-third of the $50,000 conversion, or about $16,667, even though the other $33,333 stays in your traditional IRA untouched.

The pro-rata rule applies in the year you convert, based on the balance of all your IRAs on December 31 of that year. If you want to avoid this rule, you must have zero balance in all traditional, SEP, and straightforward IRAs by the end of the year. Some people roll their traditional IRA into a 401(k) plan (if their employer allows it) to remove it from the pro-rata calculation before converting.

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

First, contact your 401(k) plan administrator — usually the benefits department at your former or current employer, or a third-party administrator if your employer uses one. Ask for a direct rollover to a Roth IRA. Provide the name and address of the Roth IRA custodian (your bank or brokerage) and your Roth IRA account number.

The plan administrator will prepare a check or electronic transfer in your name or in the name of the Roth IRA custodian. If the check is made to you personally, you receive it and must deposit it into your Roth IRA within 60 days. If it is made to the custodian, the custodian receives it directly and deposits it into your account — this is safer because the 60-day clock does not start until the custodian receives the funds.

Once the money arrives in your Roth IRA, the conversion is complete. You then report it on your tax return using Form 8606 (Nondeductible IRAs). This form tells the IRS the amount you converted and helps calculate your tax liability. Your 401(k) plan administrator will send you a Form 1099-R showing the distribution; your Roth IRA custodian will send you a separate Form 5498-R showing the contribution.

Conversions and the 10% early withdrawal penalty

If you are under 59½, a conversion itself does not trigger the 10% early withdrawal penalty — the penalty applies only to withdrawals of earnings from the Roth IRA before age 59½. Contributions (the money you converted) can be withdrawn at any time without penalty.

However, if you withdraw the 401(k) money and do not convert it within 60 days, the IRS treats it as an early withdrawal subject to the 10% penalty plus income tax. This is why the 60-day important date is critical if you are under 59½.

Some 401(k) plans allow you to take a loan instead of a withdrawal. A loan does not trigger the penalty and does not count as income. If your plan offers loans, this can be an alternative to a conversion if you want to access the money without an when ready tax bill.

Frequently Asked Questions

Can I convert part of my 401(k) and leave the rest?

Yes. You can convert any amount up to the full balance. You do not have to convert everything. The amount you convert is taxable that year, and the amount you leave behind stays in your 401(k) and grows tax-deferred.

What happens to my 401(k) match if I convert?

Your employer match stays in your 401(k) unless you specifically request it as part of the conversion. You can convert the match separately if you want, but it is subject to the same 60-day rule and tax treatment as any other conversion.

Can I convert a 401(k) loan?

No. A loan is not a distribution, so you cannot convert it. You must repay the loan according to your plan's terms. If you leave your job and cannot repay the loan, it is treated as a taxable distribution and may be subject to the 10% penalty.

Do I have to convert all my 401(k)s if I have more than one?

No. You can convert one 401(k) and leave others alone. Each conversion is separate. However, if you have a traditional IRA, the pro-rata rule applies to all of them together in the same year.

What if I change my mind after I convert?

You can undo a conversion by filing Form 8606 with an amended tax return (Form 1040-X) before the tax important date for that year, including extensions. This is called a recharacterization. Once the important date passes, the conversion is permanent and you cannot reverse it.