How to Move Money From Your 401(k) to a Roth IRA

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

A Roth conversion means taking money from your 401(k) and depositing it into a Roth IRA. The money grows tax-free in the Roth account from that point forward, and you can withdraw it tax-free in retirement. The catch: you pay ordinary income tax on the full amount you convert in the year you move it, even though you are not spending the money.

This makes sense for some people — usually those who expect to be in a higher tax bracket later, or those who want tax-free growth for the next 20 or 30 years. It makes less sense if you are already in a high tax bracket and converting a large amount would push you into an even higher one.

The mechanics are straightforward: you instruct your 401(k) plan administrator to send the money directly to a Roth IRA you have opened, or you withdraw it yourself and deposit it within 60 days. The hard part is understanding whether the tax bill is worth it for your situation.

Key Takeaways

• You pay income tax on the full conversion amount in the year you convert, calculated at your ordinary income tax rate.
• A direct trustee-to-trustee transfer avoids the 60-day important date and withholding complications that come with a self-directed withdrawal.
• You can convert only if your 401(k) plan allows it — some plans do not permit in-service conversions, so check your plan documents first.
• Money converted to a Roth grows tax-free and can be withdrawn tax-free after age 59½, provided the account has been open at least five years.
• If you have other traditional IRAs, SEP-IRAs, or straightforward IRAs, the pro-rata rule may increase your tax bill on the conversion.

Check whether your 401(k) plan allows conversions

Not every 401(k) plan permits in-service conversions — the ability to move money out while you are still employed. Some plans allow conversions only after you leave the job. Others do not allow them at all. Your plan administrator or HR department can tell you whether your specific plan permits this.

If your plan does not allow in-service conversions, you have two options: wait until you leave the job (at which point you can roll the money to an IRA and then convert), or explore whether your plan allows a loan that you could repay from other funds. Neither is ideal, but both are legal workarounds.

If you have already left your job, this step does not explore — you can convert any 401(k) balance you left behind, or any 401(k) you rolled into a traditional IRA.

Understand the tax bill before you convert

The IRS taxes a Roth conversion as ordinary income in the year you convert. If you convert $50,000, you add $50,000 to your taxable income for that year. If you are in the 24% federal tax bracket, that conversion costs you roughly $12,000 in federal tax alone, plus any state income tax your state charges.

The conversion can also push you into a higher tax bracket. If you earn $100,000 and convert $50,000, your taxable income becomes $150,000 — which may move you from the 22% bracket into the 24% bracket for part of that income. Run the numbers with a tax calculator or spreadsheet before you commit.

One common strategy is to convert in a year when your income is unusually low — for example, the year you retire but before you start taking Social Security or required distributions. Another is to spread the conversion over multiple years, converting a smaller amount each year to stay in a lower bracket.

The pro-rata rule can increase your tax if you have other IRAs

If you own a traditional IRA, SEP-IRA, or straightforward IRA in addition to your 401(k), the IRS applies the pro-rata rule to your conversion. This rule treats all your IRAs and the amount you are converting as a single pool, and taxes you on a percentage of the conversion based on how much pre-tax money you have across all accounts.

Example: You have $100,000 in a traditional IRA (pre-tax) and $50,000 in a Roth IRA (after-tax). You want to convert $20,000 from your 401(k) to a Roth IRA. The IRS sees $100,000 in pre-tax accounts and $20,000 in the conversion, for a total of $120,000. You owe tax on $100,000 ÷ $120,000 = 83% of the conversion, or about $16,600.

This rule catches many people by surprise. If you have a large traditional IRA balance, a Roth conversion may not be worth it unless you first move the traditional IRA money somewhere else — typically to your 401(k) plan if it accepts rollovers. Check with your 401(k) plan administrator about whether they accept "reverse rollovers" of IRA money.

Execute the conversion with a direct trustee-to-trustee transfer

The safest method is a direct trustee-to-trustee transfer. You contact your 401(k) plan administrator and ask them to send the conversion amount directly to the Roth IRA custodian (usually a brokerage like Fidelity, Vanguard, or Schwab). The money never touches your hands, so there is no 60-day important date and no withholding complications.

To set this up, you will need the Roth IRA account number and the custodian's wire instructions. Your 401(k) administrator will have a form for this — sometimes called a "distribution request" or "conversion request." Fill it out, submit it, and the transfer typically completes within one to two weeks.

If you do not yet have a Roth IRA, open one first at the custodian of your choice, then request the transfer. You can open a Roth IRA at any major brokerage in minutes online.

If you withdraw the money yourself, you have 60 days to redeposit it

You can also withdraw the money from your 401(k) and deposit it into your Roth IRA yourself, but this route has risks. The IRS gives you 60 days to redeposit the money, or it counts as a taxable distribution (and you owe a 10% penalty if you are under 59½). If you miss the important date by even one day, the entire amount is taxable and penalized.

Additionally, your 401(k) plan administrator is required to withhold 20% of the distribution for federal taxes. If you convert $50,000, you receive only $40,000. You must deposit the full $50,000 into the Roth IRA within 60 days to complete the conversion properly — which means coming up with $10,000 from another source to cover the withheld amount.

For these reasons, a direct transfer is almost always better. Use a self-directed withdrawal only if your plan administrator will not process a direct transfer.

Report the conversion on your tax return

In the year you convert, you will receive a Form 1099-R from your 401(k) plan administrator showing the distribution amount. You will also receive a Form 5498 from your Roth IRA custodian showing the contribution. These forms are sent to the IRS automatically.

On your federal tax return, you report the conversion on Form 8606 (Nondeductible IRAs). This form calculates how much of the conversion is taxable. If the entire amount is pre-tax 401(k) money, the entire conversion is taxable. If you had already paid tax on part of the 401(k) balance (called "basis"), that portion is not taxed again.

File Form 8606 even if the entire conversion is taxable — the IRS uses it to track your Roth IRA basis for future withdrawals. Failing to file it can create confusion and penalties down the road.

Frequently Asked Questions

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

Only if your 401(k) plan allows in-service conversions. Check your plan documents or ask your HR department. If your plan does not allow it, you must wait until you leave the job or take a loan from the plan and repay it from other funds.

What happens if I convert and then need the money back?

You cannot undo a conversion. However, you can withdraw the converted amount from the Roth IRA (though you will owe tax on any earnings it generated), or you can recharacterize the conversion as a regular IRA contribution if you do so by the tax filing important date. Recharacterization is complex — consult a tax professional if you think you need it.

Do I have to convert my entire 401(k) balance?

No. You can convert a partial amount and leave the rest in the 401(k) or roll it to a traditional IRA. This lets you spread conversions over multiple years to manage your tax bracket.

What is the five-year rule for Roth conversions?

You must hold the converted money in the Roth IRA for at least five years before withdrawing it tax-free. The five-year period starts on January 1 of the year you convert. If you withdraw before five years have passed, you owe tax on any earnings, though the converted principal itself is not taxed again.

Will a Roth conversion affect my Medicare premiums or Social Security taxes?

Yes. A conversion increases your taxable income for that year, which can raise your Medicare premiums (through IRMAA surcharges) and may cause more of your Social Security benefits to be taxed. Run the numbers with a tax professional before converting in a year you turn 65 or claim benefits.