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

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

A rollover moves money from your 401(k) directly to a Roth IRA without penalty, as long as you follow the IRS rules. The catch: you pay ordinary income tax on whatever you convert in that tax year. If you roll over $50,000, you report $50,000 as taxable income on your return. The tax bill is separate from the rollover itself — the IRS does not withhold it automatically, so you need to plan for it.

You can do this rollover at any time, whether you are still working, have left your job, or are retired. The rules are the same. What changes is whether your old employer's plan will let you do it while you are still employed there — some plans allow it, others do not. Once you leave a job, your former employer's plan almost always allows rollovers out.

The main reason people do this: money in a Roth IRA grows tax-free and you can withdraw it tax-free in retirement, whereas a traditional 401(k) is taxed when you take it out. You are paying the tax now to avoid it later.

Key Takeaways

A rollover from a 401(k) to a Roth IRA is allowed at any time, but you owe income tax on the full amount you convert in that tax year.
You can do a direct rollover (the money goes straight from the 401(k) plan to the Roth IRA) or an indirect rollover (you receive the check and deposit it yourself within 60 days).
If you do an indirect rollover, your employer will withhold 20 percent for taxes, but you still owe tax on the full amount — you have to make up the difference from your own money or owe it at tax time.
Once money is in the Roth IRA, you cannot withdraw the earnings tax-free until you are 59½ and have held the account for at least five years.
If you have a large traditional IRA or multiple IRAs, the "pro-rata rule" may increase your tax bill — talk to a tax professional before you convert.

Direct rollover versus indirect rollover

A direct rollover is the simpler route. You contact your 401(k) plan administrator and ask them to send the money directly to the Roth IRA custodian (the bank or brokerage holding your Roth). No check comes to you. No withholding happens. The money moves from one account to the other, and you report the conversion on your tax return.

An indirect rollover means your 401(k) plan sends you a check. You then deposit it into a Roth IRA within 60 calendar days. If you miss the 60-day window, the IRS treats it as a withdrawal, and you owe tax plus a 10 percent penalty if you are under 59½. Your employer will withhold 20 percent of the amount for federal taxes before they send you the check — so if you roll over $50,000, you receive $40,000 and the plan sends $10,000 to the IRS. You still owe tax on the full $50,000, though, so you have to deposit the $10,000 from your own money or pay the difference when you file your return.

Direct rollovers avoid the withholding trap and the 60-day deadline risk. If you have a choice, use the direct method.

The tax bill you owe

When you convert a 401(k) to a Roth IRA, the IRS taxes the conversion as ordinary income in the year you do it. If you are in the 24 percent tax bracket and convert $50,000, you owe roughly $12,000 in federal tax. State tax may apply too, depending on where you live.

This tax is not withheld automatically on a direct rollover. You have to pay it when you file your return, or make estimated tax payments during the year if the amount is large. If you do not pay it, you will owe penalties and interest.

Some people convert a small amount each year to spread the tax bill across multiple years and stay in a lower bracket. Others convert in a year when their income is already low — for example, the year they retire or take unpaid leave. There is no single right answer; it depends on your income and tax situation.

The pro-rata rule and why it matters

If you have a traditional IRA, SEP IRA, or SIMPLE IRA in addition to the 401(k) you want to convert, the IRS pro-rata rule applies. This rule says: if you have $100,000 in traditional IRAs and $50,000 in a 401(k), and you convert the $50,000 to a Roth, the IRS treats it as if you converted a mix of pre-tax and after-tax money from all your IRAs combined.

The result: you may owe tax on more than you actually converted. For example, if 80 percent of your total IRA and 401(k) balance is pre-tax money, the IRS says 80 percent of your $50,000 conversion is taxable — even though the $50,000 itself is all pre-tax. This can make a large conversion much more expensive than you expected.

The pro-rata rule applies to all your IRAs combined, but not to employer plans like 401(k)s, 403(b)s, or 457 plans. If you have money in both an IRA and a 401(k), talk to a tax professional before you convert. They can help you decide whether to move IRA money into your 401(k) first (if your plan allows it) to avoid the pro-rata hit.

Withdrawal rules after the conversion

Once money is in a Roth IRA, the rules change. You can withdraw money you contributed (your "basis") at any time without tax or penalty. But the earnings — the growth on that money — are locked until you are 59½ and have held the Roth IRA for at least five years.

When you convert a 401(k) to a Roth, the IRS counts the converted amount as a contribution for purposes of the five-year rule. So if you convert $50,000 today, you cannot withdraw the earnings on that $50,000 tax-free until five years have passed and you are 59½. The five-year clock starts the year of the conversion.

There are narrow exceptions: you can withdraw earnings early if you become disabled, die, or face a may have access to hardship. But these are rare. Plan on the money staying in the account until you meet both conditions.

Steps to roll over a 401(k) to a Roth IRA

Step 1: Open a Roth IRA if you do not have one. You can open one at any bank, brokerage, or credit union. There is no cost. You will need your Social Security number and basic personal information.

Step 2: Contact your 401(k) plan administrator. Call the number on your plan statement or log into the plan's website. Ask for the rollover department. Tell them you want to do a direct rollover to a Roth IRA and ask for the form they require. Some plans call this a "distribution request" or "rollover form."

Step 3: Provide the Roth IRA custodian's information. Your plan will ask for the name of the bank or brokerage holding your Roth, the account number, and the routing number. Get this from your Roth IRA custodian before you call the plan.

Step 4: Specify the amount. You can roll over part or all of your 401(k) balance. If you roll over only part, the plan will keep the rest in the 401(k) or send it to you as a distribution (which triggers withholding and tax).

Step 5: Wait for the transfer. Direct rollovers usually take one to two weeks, sometimes longer. Do not assume the money has arrived until you see it in your Roth IRA account.

Step 6: Report the conversion on your tax return. When you file, you will report the rollover on Form 8606 (for IRAs) or your tax software will prompt you. You owe tax on the full amount converted, even if you did a direct rollover and no withholding occurred.

What happens if you miss the 60-day deadline on an indirect rollover

If you receive a check from your 401(k) and do not deposit it into a Roth IRA within 60 calendar days, the IRS treats it as a withdrawal. You owe income tax on the full amount. If you are under 59½, you also owe a 10 percent early withdrawal penalty. The withholding your employer already sent to the IRS counts toward your tax bill, but it usually does not cover the full amount you owe.

The 60-day rule is strict — weekends and holidays count. If day 60 falls on a weekend, you have until the next business day. If you are close to the deadline and the money has not arrived, contact your plan administrator immediately. Some plans will grant a brief extension in cases of bank delays or other circumstances beyond your control, but this is rare and not may provide.

Frequently Asked Questions

Can I roll over a 401(k) to a Roth IRA if I am still working?

It depends on your employer's plan. Some plans allow in-service rollovers to a Roth IRA while you are still employed; others do not. Contact your plan administrator to ask. If your plan does not allow it, you can roll over after you leave the job.

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

No. You can convert part of it and leave the rest in the 401(k). If you leave money behind, it stays in the plan under the same rules as before. You might do a partial conversion to keep your tax bill lower in any single year.

What if I have already taken a distribution from my 401(k) this year?

You can still do a rollover. The rollover and the distribution are separate transactions. The distribution is taxable; the rollover is only taxable to the extent you convert pre-tax money. But if you took a large distribution, your total income for the year will be higher, which may push you into a higher tax bracket.

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

You used to be able to "recharacterize" a conversion and move the money back, but that option ended in 2018. Once you convert, the conversion is permanent. If the market drops after you convert and you regret it, you cannot reverse it. This is another reason to think carefully about the amount and timing before you convert.

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

Yes, it can. A conversion increases your income for that year, which may affect your Medicare premiums (IRMAA) and the tax treatment of your Social Security benefits. If you are close to retirement or already receiving benefits, talk to a tax professional or Social Security representative before you convert.

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.