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

A Roth conversion lets you take money from a traditional 401(k) and deposit it into a Roth IRA. The IRS allows this move at any time, regardless of your age or income. The catch: you pay ordinary income tax on whatever amount you convert in that tax year, as if you had withdrawn the money and spent it. You do not pay an early withdrawal penalty if you are under 59½, but you do pay the tax.

The reason people do this is that money already in a Roth IRA grows tax-free forever, and you never have to withdraw it. A traditional 401(k) forces you to take withdrawals starting at age 73, and those withdrawals are taxed as income. If you think you will be in a higher tax bracket later, or you want to leave tax-assistance programs to heirs, converting now at a lower tax rate can make sense. If you think tax rates will stay the same or drop, it usually does not.

The conversion process itself is straightforward: your 401(k) custodian (the bank or brokerage holding the account) transfers the money directly to the Roth IRA custodian. You report the conversion on your tax return that year. The tax bill comes due when you file, not when you move the money.

Key Takeaways

  • You owe federal income tax on the full amount you convert, calculated at your ordinary income tax rate for that year.
  • You can convert at any age and from any type of 401(k)—traditional, SEP, or SIMPLE—as long as the plan allows it.
  • The conversion does not trigger the 10% early withdrawal penalty, but the tax bill is separate and due when you file your return.
  • You have 60 days from the time you receive a distribution to deposit it into a Roth IRA, or the IRS treats it as a taxable withdrawal.
  • If you have other traditional IRAs, SEP IRAs, or SIMPLE IRAs, the conversion math gets more complicated because the IRS counts all of them together.

How the tax bill works when you convert

The IRS taxes a Roth conversion as ordinary income in the year you do it. If you convert $50,000, that $50,000 is added to your other income for the year, and you pay tax at whatever rate applies to that combined total. If you earn $75,000 in salary and convert $50,000, the IRS treats you as having $125,000 in income that year.

This matters because it can push you into a higher tax bracket. If you are close to a bracket boundary, a large conversion might cost you more in taxes than a smaller one would. Some people spread conversions over multiple years to stay in a lower bracket. Others do a large conversion in a year when they had lower income—for example, after leaving a job or taking unpaid leave.

You do not have to pay the tax upfront. You pay it when you file your tax return for that year, usually by April 15 of the following year. If you expect a large tax bill, you can make estimated tax payments throughout the year to avoid penalties.

Which 401(k)s can be converted and which cannot

You can convert money from a traditional 401(k), a SEP IRA, or a SIMPLE IRA. You cannot convert from a Roth 401(k)—it is already tax-free, so there is nothing to convert. You also cannot convert from a 403(b) or 457 plan directly; those plans have their own rules, and you would need to roll them to an IRA first, then convert.

If you still work for the employer that sponsors the 401(k), the plan may not allow you to convert while you are employed. Some plans do; some do not. You need to check your plan documents or call the plan administrator. If you have left the job, you can almost always convert, because the money is no longer tied to an active employment relationship.

If your 401(k) is with a previous employer, you can convert it without asking permission—the plan has no say once you have separated from the company. If it is your current employer's plan, you must confirm the plan allows in-service conversions before you proceed.

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

The pro-rata rule is the part of Roth conversions that catches people off guard. If you have any traditional IRAs, SEP IRAs, or SIMPLE IRAs—even small ones—the IRS counts all of them together when you convert. You cannot pick and choose which money gets converted tax-free.

Here is how it works: suppose you have a traditional IRA with $10,000 in pre-tax contributions and $90,000 in after-tax contributions (money you put in but did not deduct). You want to convert the $90,000 after-tax portion to a Roth. The IRS says no—you have to convert a mix. Since 10% of your total IRA balance is pre-tax, 10% of your conversion is taxable. You owe tax on $9,000 of the $90,000 you moved.

This rule applies across all your traditional and SEP and SIMPLE IRAs combined. It does not apply to 401(k)s, 403(b)s, or 457 plans—those are separate. So if you have a 401(k) and a traditional IRA, the pro-rata rule only looks at the IRA. But if you have multiple IRAs, they all count together.

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

If your 401(k) custodian sends you a check instead of transferring the money directly to the Roth IRA, you have 60 days to deposit it. This is called an indirect rollover. If you miss the 60-day deadline, the IRS treats the money as a withdrawal, not a conversion. You owe income tax on it, plus a 10% early withdrawal penalty if you are under 59½.

The 60 days starts the day you receive the check, not the day you request it. If your custodian mails it and it takes a week to arrive, your clock is already running. The safest route is to ask for a direct transfer instead—the custodian sends the money straight from the 401(k) to the Roth IRA, and there is no 60-day window to worry about.

If you do receive a check and deposit it late, you can ask the IRS for relief in some cases, but this requires filing Form 8329 and explaining why you missed the deadline. It is not automatic. The direct transfer method avoids this problem entirely.

Roth conversion versus rolling to a traditional IRA first

You have two paths: convert directly from the 401(k) to the Roth, or roll the 401(k) to a traditional IRA first, then convert from there. Both end with money in a Roth IRA and a tax bill. The difference is timing and flexibility.

A direct conversion is simpler—one transfer, one tax bill. Rolling to a traditional IRA first gives you time to think and lets you split the money if you want (some to the Roth, some staying in the traditional IRA). It also lets you keep the 401(k) money separate from other IRAs, which can help with the pro-rata rule if you have other IRAs with pre-tax money in them.

If you roll to a traditional IRA and then convert, the pro-rata rule still applies—the IRS counts all your traditional IRAs together. But at least you have the option to keep the 401(k) money in a separate account and convert it later, or convert only part of it. With a direct conversion, you convert what you convert, and the tax bill is immediate.

What happens to employer match and loan provisions

If your 401(k) includes employer match money, that can be converted just like your own contributions. There is no separate rule for it—it all gets taxed the same way. The only exception is if your plan has a loan against it. You cannot convert a 401(k) that has an outstanding loan; you have to pay off the loan first or leave the money in the plan.

If you leave the job and the 401(k) has a loan, the plan usually requires you to repay it within 60 days or it becomes a taxable distribution. You cannot roll a 401(k) with an outstanding loan to an IRA. Settle the loan before you move forward with a conversion.

Frequently Asked Questions

Do I have to convert my entire 401(k), or can I convert just part of it?

You can convert part or all of it. If you convert $30,000 of a $100,000 balance, the remaining $70,000 stays in the 401(k). You only pay tax on the $30,000 you moved. This lets you spread conversions over time or convert only what makes sense for your tax situation that year.

What if I convert and then the market drops—can I undo it?

Yes, through a process called a recharacterization. You can move the money back to a traditional IRA (or 401(k)) by the tax filing deadline for that year, plus extensions. If the account has lost value, you owe tax only on what you converted, not on the current balance. This is useful if you convert and the market immediately drops.

Can I convert if I am over 72 and taking required minimum distributions?

Yes. The age limit on conversions was removed in 2023. You can convert at any age. However, if you are taking required minimum distributions from a traditional IRA, you must take the full RMD before you convert—you cannot use a conversion to avoid the RMD.

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

It can. The conversion counts as income for that year, which can increase your Modified Adjusted Gross Income (MAGI). Higher MAGI can trigger higher Medicare premiums (IRMAA surcharges) and can affect Social Security taxation. If you are near Medicare age, talk to a tax professional before converting a large amount.

What if my employer plan does not allow conversions?

Roll the 401(k) to a traditional IRA first (this is always allowed when you leave the job), then convert from the IRA to the Roth. The plan cannot stop you from rolling to an IRA, and once the money is in an IRA, you can convert it whenever you want.