Yes, 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 means taking money out of your 401(k) and depositing it into a Roth IRA. The IRS allows this move, but treats it as taxable income in the year you convert. If you convert $50,000, you add $50,000 to your taxable income that year — which may push you into a higher tax bracket and trigger taxes on Social Security or Medicare premiums. The conversion itself is permanent; once the money is in the Roth, you cannot undo it by filing an amended return.

You can convert at any age and at any income level. Unlike Roth IRA contributions, which have income limits that phase out your ability to put money in directly, conversions have no income ceiling. This is why high-income earners sometimes use conversions as a backdoor way to fund a Roth when they cannot contribute directly.

Key Takeaways

  • Converting a 401(k) to a Roth IRA requires you to pay income tax on the full amount converted in that tax year.
  • You can convert at any income level, but the tax bill may be large enough to push you into a higher tax bracket or trigger other tax consequences.
  • After conversion, the money grows tax-free in the Roth and you can withdraw it tax-free in retirement, unlike the 401(k) where withdrawals are taxed.
  • If you have other pre-tax retirement accounts (traditional IRAs, SEP IRAs, or SIMPLE IRAs), the IRS may tax part of your conversion based on the total balance across all those accounts.
  • You must complete the conversion by December 31 of the year you want it to count; conversions cannot be reversed as of 2018.

How the conversion process works step by step

First, contact your 401(k) plan administrator or log into your plan's website and request a distribution. You will need to specify the amount — you can convert part of your balance or all of it. The plan will cut a check or initiate an electronic transfer. You have 60 days from the date you receive the money to deposit it into a Roth IRA, or the IRS treats it as a withdrawal and you lose the conversion opportunity.

The safest method is a direct rollover, where the 401(k) plan sends the money straight to the Roth IRA custodian (Fidelity, Vanguard, Charles Schwab, or another provider) without it passing through your hands. This avoids the 60-day clock and the risk of accidentally triggering a withholding requirement. Ask your plan administrator whether they offer direct rollovers to IRAs; most do, but some older or smaller plans may not.

If you must take the money yourself (an indirect rollover), the plan will typically withhold 20 percent for federal income tax. That withheld amount still counts as part of your conversion for tax purposes, but you will need to make up the difference from your own funds if you want to convert the full amount. For example, if you convert $50,000, the plan withholds $10,000 and sends you $40,000; you must deposit $50,000 into the Roth to complete the full conversion, meaning you pay $10,000 out of pocket.

The tax bill you will owe

The amount you convert becomes ordinary income on your tax return for that year. If you convert $50,000 and you are in the 24 percent federal tax bracket, you will owe roughly $12,000 in federal tax (plus any state income tax, which varies by state). Some states do not tax retirement income, while others tax it at their full income tax rate.

The conversion can also trigger secondary taxes. If you are over 65 and receive Social Security, a large conversion may cause up to 85 percent of your Social Security benefits to become taxable. If you are on Medicare, a conversion may increase your premiums for Part B and Part D in the following year, because Medicare bases premiums on your income from two years prior. These effects are real and can add thousands to your tax bill.

You pay the tax from your regular income or savings, not from the converted amount itself. The money you convert goes into the Roth untouched; the tax is separate. This is why conversions work best when you have cash on hand to pay the tax bill without raiding the retirement account.

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

If you have a traditional IRA, SEP IRA, or SIMPLE IRA in addition to your 401(k), the pro-rata rule affects your conversion. The IRS treats all your pre-tax retirement accounts as one pool for tax purposes. If you have $100,000 in a traditional IRA and $50,000 in your 401(k), and you convert $50,000 from the 401(k), the IRS calculates what portion of that $50,000 is pre-tax money and what portion is after-tax money.

In this example, your total pre-tax balance is $150,000 ($100,000 traditional IRA plus $50,000 from the 401(k)). The $50,000 you are converting represents one-third of that total, so one-third of your conversion ($16,667) is treated as after-tax money and converts tax-free. The other two-thirds ($33,333) is pre-tax and you owe tax on it. You cannot cherry-pick only the after-tax portion to convert.

This rule catches many people off guard. If you are considering a conversion and you have a traditional IRA with pre-tax money in it, you need to account for that IRA balance before you convert. One workaround is to roll the traditional IRA into your 401(k) plan (if your plan allows it) before you convert, which removes it from the pro-rata calculation.

When a conversion makes financial sense

A conversion is most useful when your income is temporarily low — for example, if you are between jobs, took early retirement, or had a year with unusually low earnings. Converting in a low-income year means you pay a lower tax rate on the conversion than you would in a high-income year.

Conversions also make sense if you expect to be in a higher tax bracket in retirement than you are now, or if you believe tax rates will rise in the future. By converting now at today's rates, you lock in the tax cost and let the money grow tax-free in the Roth. In retirement, you can withdraw it without owing any tax, which saves you money if rates have gone up.

A conversion can also be strategic if you have a large amount of pre-tax retirement savings and you want to reduce your required minimum distributions (RMDs) in later years. Roth IRAs have no RMD requirement during your lifetime, so converting some of your 401(k) to a Roth lowers the amount you must withdraw each year after age 73, which can reduce your tax bill and preserve more of your savings.

What happens to your 401(k) after you convert

Converting does not close your 401(k). The money you convert leaves the account, but your 401(k) remains open and you can continue to contribute to it if you are still employed and your plan allows it. If you leave your job, you can convert the remaining balance later, or roll it into a traditional IRA instead.

If your 401(k) plan is with your current employer, you cannot convert it while you are still working there — you must wait until you leave the job, retire, or reach age 59½ (depending on your plan's rules). Once you separate from service or reach that age, you can request a distribution and convert it. Plans vary, so check with your plan administrator about when conversions are permitted.

Frequently Asked Questions

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

No. Before 2018, you could reverse a conversion by filing an amended tax return, but that option ended. Once you convert, the money stays in the Roth and the conversion is permanent. You still owe the tax on the amount you converted, even if the account value drops afterward.

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

No. You can convert part of your balance in one year and the rest later, or spread conversions across multiple years. This lets you manage the tax impact by converting smaller amounts in years when your income is lower.

What if I convert and then lose my job or have a major life change?

The conversion is still permanent and you still owe the tax. However, if your income drops significantly in that year, you may be able to file an amended return to claim a lower tax bracket or other deductions that reduce the tax owed. Speak with a tax professional about your specific situation.

Can I convert if I am still working and contributing to my 401(k)?

It depends on your plan. Some plans allow in-service conversions while you are employed; others do not. Check with your plan administrator. If your plan does not allow it, you must wait until you leave your job, retire, or reach age 59½.

What if my 401(k) has both pre-tax and after-tax money?

You can convert the after-tax portion without owing additional tax on it, but the pro-rata rule still applies if you have other pre-tax retirement accounts. The IRS will calculate the ratio of pre-tax to after-tax money across all your accounts and tax the conversion accordingly. This is complex; consult a tax professional before converting.