How to Move Money From a 401k Into a Roth IRA

Yes, you can roll over a 401k to a Roth IRA, but you will owe income tax on the money you move

A rollover from a traditional 401k to a Roth IRA is allowed under federal tax law, but it works differently than rolling into a traditional IRA. When you move the money, the IRS treats it as a conversion: you pay income tax on the full amount you transfer in the year you do it. That tax bill is separate from your regular income tax and can be substantial. The money then grows tax-free in the Roth IRA, and you can withdraw it tax-free in retirement.

The process itself is straightforward. You contact your 401k plan administrator, request a direct rollover to a Roth IRA, and provide the Roth IRA account details. The money moves directly from the 401k custodian to the Roth IRA custodian—you never touch it. This direct transfer avoids the 60-day rule that applies to indirect rollovers and prevents accidental tax penalties.

Key Takeaways

Rolling a traditional 401k to a Roth IRA requires you to pay income tax on the entire amount converted in that tax year.
A direct rollover (custodian to custodian) is the safest method and avoids the 60-day deadline that indirect rollovers must meet.
You can roll over a 401k to a Roth IRA at any income level—there is no income limit for conversions, unlike Roth IRA contributions.
If your 401k holds both pre-tax and after-tax money, the IRS pro-rata rule may require you to pay tax on a portion of the after-tax money you convert.
You must have earned income in the year you convert, and you cannot undo the conversion after the tax year ends.

Direct rollover versus indirect rollover

A direct rollover is the method most people use. You ask your 401k plan administrator to send the money directly to your Roth IRA custodian (the bank or brokerage holding your Roth account). The 401k administrator issues a check made out to the Roth IRA custodian, not to you. You never handle the cash. This method has no time limit and no tax withholding.

An indirect rollover means the 401k administrator sends the check to you. You then deposit it into your Roth IRA within 60 days. The IRS requires this 60-day window; if the money sits in your account longer, it becomes a taxable distribution and you may owe a 10 percent early withdrawal penalty if you are under 59½. Additionally, the 401k administrator must withhold 20 percent of the amount for federal taxes, even though you are rolling it over. You will need to cover that withheld amount from your own funds to complete the full rollover, or the shortfall becomes taxable income.

Direct rollover is simpler and safer. Use it unless your 401k plan does not offer it.

The tax bill you owe on conversion

When you convert a traditional 401k to a Roth IRA, the IRS taxes the conversion as ordinary income. If you convert $50,000, you add $50,000 to your taxable income for that year. Your tax bracket determines what you owe. If you are in the 24 percent federal bracket, a $50,000 conversion costs roughly $12,000 in federal tax (plus any state income tax, depending on where you live).

You do not have to pay this tax from the rollover itself. You can pay it from other money—a bank account, your paycheck, or a loan. Many people do this to keep the full $50,000 growing in the Roth IRA. However, if you use money from the 401k to pay the tax, that withdrawal is taxable too, and you may owe the 10 percent early withdrawal penalty if you are under 59½.

The tax is due when you file your return for the year of the conversion. You report it on Form 8606 (Nondeductible IRAs), which you file with your 1040. If you expect a large tax bill, you can make estimated tax payments throughout the year to avoid underpayment penalties.

The pro-rata rule and after-tax money in your 401k

If your 401k contains both pre-tax contributions (the money that reduced your taxable income when you contributed it) and after-tax contributions (money you put in with dollars you already paid tax on), the pro-rata rule applies. The IRS does not let you convert only the after-tax portion to a Roth IRA tax-free. Instead, you must treat all your 401k money—across all 401k accounts you own—as one pool.

The IRS calculates what percentage of your total 401k balance is after-tax money. You pay tax only on that percentage of the amount you convert. For example, if your 401k is 80 percent pre-tax and 20 percent after-tax, and you convert $50,000, you pay tax on $40,000 (80 percent of $50,000). The $10,000 (20 percent) moves to the Roth tax-free.

This rule catches many people off guard. If you have a large 401k balance that is mostly pre-tax, converting a small amount to a Roth still triggers tax on most of it. Some people avoid this by rolling pre-tax 401k money into a traditional IRA first, then converting only after-tax money to the Roth. However, this strategy requires careful planning and may not work if your employer plan does not allow in-service distributions or if you have other IRAs. Consult a tax professional before attempting this.

Income limits do not apply to conversions

Unlike Roth IRA contributions, which have income limits that phase out your ability to contribute directly, conversions have no income ceiling. You can earn $1 million a year and still convert a 401k to a Roth IRA. This is why conversions are often used by high-income earners who cannot contribute to a Roth IRA directly.

However, a large conversion can push you into a higher tax bracket, which increases the tax you owe on the conversion itself. It can also affect other tax benefits you claim, such as the child tax credit or education credits, because those benefits phase out at higher income levels. Running the numbers with a tax professional before converting a large amount is worth the cost.

Timing and the one-rollover-per-year rule

You can perform a rollover at any time during the year. However, the IRS limits you to one rollover per 12-month period across all your IRAs (traditional, SEP, and SIMPLE IRAs combined). This rule does not apply to direct rollovers from a 401k to an IRA—those are unlimited. It applies only to indirect rollovers and transfers between IRAs.

If you do an indirect rollover and then try to do another indirect rollover within 12 months, the second one is treated as a taxable distribution. The 12-month period is measured from the date you received the first check, not from when you deposited it into the IRA.

Direct rollovers from your 401k to a Roth IRA do not count against this limit, so you can do as many direct rollovers as you want. This is another reason direct rollover is the preferred method.

What happens after the rollover is complete

Once the money lands in your Roth IRA, it follows Roth IRA rules. You can withdraw contributions (the money you converted) at any time without tax or penalty. Earnings on that money are tax-free if you wait until age 59½ and the account has been open for at least five tax years. If you withdraw earnings before meeting those conditions, you owe tax and a 10 percent penalty on the earnings only, not on the contributions.

The five-year rule is per Roth IRA account, not per conversion. If you open your first Roth IRA and convert money into it in 2024, the five-year clock starts in 2024. Any conversion you do after that uses the same five-year window. If you already had a Roth IRA open before 2024, the five-year rule is already satisfied.

Frequently Asked Questions

Can I convert my 401k to a Roth IRA if I am still working at the company?

It depends on your plan. Some 401k plans allow in-service distributions or in-service conversions while you are still employed. Others do not. Contact your plan administrator to ask whether your plan permits conversions. If it does not, you can wait until you leave the job, retire, or reach age 59½ (when most plans allow distributions).

What if I have a Roth 401k, not a traditional 401k?

You can roll a Roth 401k directly into a Roth IRA without paying any tax, because the money is already after-tax. The process is the same: request a direct rollover from your 401k administrator to your Roth IRA custodian. No conversion tax applies.

Can I undo a conversion if I change my mind?

No. Prior to 2018, you could recharacterize a conversion (undo it and move the money back to a traditional IRA). That option ended. Once you convert, the conversion is permanent. If the market drops after you convert and you regret it, you cannot reverse it. This is why some people convert smaller amounts or spread conversions across multiple years.

Do I need to report the rollover to the IRS?

Yes. You report it on Form 8606 when you file your tax return for the year of the conversion. Your 401k administrator will send you a Form 1099-R showing the distribution. Your Roth IRA custodian will send you a Form 5498 showing the contribution. Both forms go to the IRS, so the conversion is already in the system.

What if my 401k is in company stock?

You can convert company stock held in your 401k to a Roth IRA. The stock is valued at its fair market value on the day of the conversion, and that value is your taxable income. After the conversion, the stock sits in your Roth IRA and grows tax-free. If the stock appreciates significantly after the conversion, all that gain is tax-free in the Roth.

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.