Yes, you can move 401(k) money to a Roth IRA, but you will owe taxes on the conversion

A 401(k)-to-Roth conversion is legal and available to most people, but it is not automatic. You must request it, and the IRS treats the money you move as income in the year you move it. That means you will owe federal income tax — and possibly state income tax — on the full amount you convert. The tax bill comes due when you file that year's return, not when you move the money.

The reason people do this anyway is that Roth IRAs have no required withdrawals in your lifetime, and all future growth is tax-free. A 401(k) forces you to start taking money out at age 73, and those withdrawals are taxed as ordinary income. If you think you will be in a higher tax bracket later, converting now at a lower rate can save you money over decades.

The mechanics are straightforward: you contact your 401(k) plan administrator, request a distribution, and direct it to a Roth IRA at a bank or brokerage. The whole process usually takes two to four weeks. But the tax consequence is permanent, so you should understand the math before you start.

Key Takeaways

  • You can convert a 401(k) to a Roth IRA at any age and with any income level — there are no income limits for conversions, only for direct Roth contributions.
  • You must pay federal income tax on the full amount you convert in the year you convert it, which can push you into a higher tax bracket that year.
  • The conversion is irreversible as of 2018, so you cannot undo it if the market drops or your tax situation changes.
  • You can convert only after you leave the employer or meet certain conditions while still employed, depending on your plan's rules.
  • A direct trustee-to-trustee transfer avoids the 60-day rollover window and withholding complications that come with taking the money yourself.

When you can convert a 401(k) to a Roth IRA

Timing depends on your employment status and your plan's rules. If you have already left the employer, you can convert at any time — there is no waiting period. If you are still employed, most plans do not allow conversions until you reach age 59½, separate from service, or meet another triggering event like disability. Some plans are more restrictive; others allow "in-service conversions" at any age. You need to check your specific plan document or call your plan administrator to know your options.

The year you convert matters for taxes. If you convert in January, the tax bill is due the following April. If you convert in December, the tax bill is still due the following April — the IRS counts the entire conversion as income for that calendar year. This matters if you are trying to time the conversion to a year when your income is lower than usual.

How the tax bill works

The IRS taxes the full amount you convert as ordinary income. If you convert $50,000, you add $50,000 to your taxable income for that year. At a 24% federal tax rate, that is $12,000 in federal tax alone — and you still owe state tax if your state has an income tax.

The tax can push you into a higher bracket. If you normally earn $80,000 and convert $50,000, the IRS treats you as earning $130,000 that year. You pay tax at the marginal rate on that extra $50,000, which is higher than your normal rate. This can also trigger the Net Investment Income Tax (3.8% on high earners) or reduce tax deductions you normally claim.

You pay the tax from your own pocket when you file your return. The 401(k) plan does not withhold it automatically unless you request withholding. Many people make a mistake here: they convert $50,000 but do not set aside $12,000 for taxes, then face a bill they cannot pay. Plan ahead and either save the money or request withholding from the conversion itself.

Direct transfer versus taking the money yourself

There are two ways to move the money: a direct trustee-to-trustee transfer or a rollover. A direct transfer is simpler and safer. You tell your 401(k) plan to send the money directly to your Roth IRA custodian. The money never touches your hands, and there is no 60-day deadline. This is the method most financial advisors recommend.

A rollover means the plan sends you a check. You then have 60 days to deposit it into a Roth IRA. If you miss the deadline, the IRS treats it as a withdrawal, not a conversion, and you owe a 10% early withdrawal penalty on top of the income tax — unless you are over 59½. The plan also withholds 20% for federal tax, so if you convert $50,000, you receive only $40,000. You have to come up with the $10,000 withholding from your own money and deposit the full $50,000 into the Roth within 60 days, or the $10,000 counts as a non-deductible contribution and creates a tax reporting mess.

Request a direct transfer. It avoids the withholding trap and the 60-day clock.

The pro-rata rule and pre-tax money

If you have both pre-tax and after-tax money in 401(k)s or traditional IRAs, the pro-rata rule applies. The IRS treats all your pre-tax retirement accounts as one pool. When you convert, you cannot cherry-pick only the after-tax money — you must convert a proportional mix of pre-tax and after-tax funds.

Example: You have $100,000 in pre-tax money across all your 401(k)s and IRAs, and $20,000 in after-tax money. That is 83% pre-tax and 17% after-tax. If you convert $30,000, the IRS says $25,000 is pre-tax (and taxable) and $5,000 is after-tax (and not taxable). You cannot convert only the $20,000 after-tax portion to avoid taxes.

This rule catches many people off guard. If you have a large pre-tax balance, a conversion can trigger a much larger tax bill than you expected. Some people solve this by rolling pre-tax money into their employer's 401(k) plan (if the plan allows it) to shrink the pre-tax pool before converting.

What happens to employer match and vesting

Employer match money is always pre-tax, so it counts toward the pro-rata calculation. If you have not fully vested in the match, you cannot convert the unvested portion — it stays in the 401(k) or is forfeited depending on the plan. Vested money (including vested match) can be converted.

Converting does not affect your vesting schedule or future match. Your employer continues to match contributions as normal. The conversion is a one-time event that does not change how your 401(k) works going forward.

Income limits and who can convert

There are no income limits for conversions. You can earn $1 million or $10 million and still convert a 401(k) to a Roth. This is different from direct Roth contributions, which have income limits. The IRS allows conversions for anyone, at any income level, at any age.

You do need to have a Roth IRA open to receive the money. If you do not have one, you can open one at any bank or brokerage — it takes 10 minutes online. You do not need to have made any prior Roth contributions; a brand-new Roth IRA can receive a conversion.

Frequently Asked Questions

Can I undo a conversion if the market drops after I convert?

No. As of 2018, conversions are permanent and cannot be reversed. If you convert $50,000 and the market drops to $40,000 the next week, you still owe tax on the full $50,000. This is why some people convert in smaller amounts over multiple years to spread the tax hit and reduce the risk of converting at a market peak.

What if I still work for the company that sponsors my 401(k)?

Most plans do not allow conversions while you are employed, but some do. Check your plan document or call your HR department. If your plan does not allow in-service conversions, you must wait until you leave the company, retire, or reach age 59½. Some plans allow conversions at 59½ even if you are still working.

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

No. You can convert part of it one year and the rest later, or convert in multiple smaller amounts over several years. This lets you spread the tax bill across multiple years and potentially stay in a lower tax bracket each year. There is no rule requiring you to convert everything at once.

What if I have loans against my 401(k)?

You cannot convert a loan balance. If you have an outstanding loan, you must repay it before converting, or the unpaid balance is treated as a taxable withdrawal. Check with your plan administrator about the loan payoff process before you request a conversion.

Will converting affect my Social Security or Medicare premiums?

Yes, possibly. The conversion increases your taxable income for that year, which can affect your Social Security tax (if you are still working and claiming benefits) and your Medicare premiums (IRMAA). If you are near the income thresholds for these programs, a large conversion could trigger higher premiums. Run the numbers with a tax professional before converting if you are on Medicare or claiming Social Security.