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

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 out of a traditional 401(k) and deposit 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 report that $50,000 as income on your tax return that year, and you pay income tax on it at your ordinary rate. You do not pay an early withdrawal penalty if you follow the rules, but the tax bill can be substantial.

The main reason people do this: money in a Roth IRA grows tax-free forever, and you never have to take withdrawals in retirement. Money in a traditional 401(k) gets taxed when you withdraw it later. If you think your tax rate will be higher in retirement, or you want tax-free growth, a Roth conversion can make sense. But it only works if you have the cash to pay the tax bill without pulling money from the conversion itself.

Key Takeaways

You can convert a traditional 401(k) to a Roth IRA at any time, but the amount you convert counts as taxable income that year.
You must pay income tax on the full amount converted; the IRS does not charge an early withdrawal penalty, but the tax liability is your responsibility.
You can only convert a traditional 401(k) to a Roth IRA if your plan allows in-service distributions, or if you have already left the employer.
If you have a Roth 401(k) through your employer, you can roll it directly to a Roth IRA with no tax consequences.
The conversion must go directly from your 401(k) plan to the Roth IRA custodian to avoid the 60-day rollover rule and withholding complications.

When you can convert: employer plan rules and job status

Whether you can convert depends on two things: whether your 401(k) plan allows it, and whether you still work for the employer. If you are still employed, your plan must permit in-service distributions — a feature that lets you move money out while you are still working there. Not all plans offer this. You will need to contact your plan administrator (usually through your HR or benefits department) and ask whether in-service conversions are allowed.

If you have left the employer, you can convert regardless of what the old plan allows. Once you are no longer on the payroll, the plan cannot stop you from rolling money out. This is the simpler path: you simply request a distribution from the plan and direct it to your Roth IRA custodian.

If your employer offers a Roth 401(k) (not a traditional 401(k)), the rules are different. You can roll a Roth 401(k) directly into a Roth IRA with zero tax consequences, because the money was already taxed when you put it in. This is a rollover, not a conversion.

How the tax bill works and when you pay it

The IRS taxes a conversion based on the full amount you move, at your ordinary income tax rate for that year. If you convert $40,000 and you are in the 24% federal tax bracket, you owe roughly $9,600 in federal tax (plus any state income tax, depending on where you live). You report this on your tax return for the year the conversion happens.

You do not have to pay the tax upfront — it is due when you file your return the following April. However, if you expect a large tax bill, you can make estimated tax payments during the year to avoid penalties. The IRS will not charge you a 10% early withdrawal penalty on the conversion itself, even if you are under 59½, but you do owe the income tax.

One common mistake: using money from the conversion to pay the tax bill. If you convert $40,000 and use $9,600 of it to cover taxes, only $30,400 actually goes into the Roth IRA. The $9,600 you withdrew counts as a separate distribution and may trigger the early withdrawal penalty if you are under 59½. Pay the tax from a separate account — savings, a paycheck, or another source.

The direct rollover method: avoiding withholding and the 60-day rule

The safest way to convert is a direct rollover. You tell your 401(k) plan to send the money directly to your Roth IRA custodian (the bank or brokerage holding your Roth IRA). The plan writes a check to the custodian, not to you. This avoids two problems: mandatory withholding and the 60-day rollover deadline.

If the plan sends money to you instead, it must withhold 20% for federal taxes. If you convert $40,000, you receive only $32,000, and $8,000 goes to the IRS. You then have 60 days to deposit the full $40,000 into the Roth IRA — including the $8,000 that was withheld. Most people cannot cover that gap, so the $8,000 stays out and counts as a taxable distribution. A direct rollover sidesteps this entirely.

To set up a direct rollover, contact your 401(k) plan administrator and ask for a direct rollover form. You will need the name and address of your Roth IRA custodian and your account number at that custodian. The plan sends the check directly; you do not handle the money. This typically takes one to two weeks.

Income limits and the pro-rata rule

The IRS does not impose an income limit on Roth conversions themselves — anyone can convert, regardless of how much they earn. However, if you have money in a traditional IRA (not a 401(k)), a pro-rata rule complicates the math. The rule says: if you have both pre-tax and after-tax money across all your traditional IRAs, you cannot convert only the after-tax portion. You must convert a proportional mix of both.

Example: you have $80,000 in a traditional IRA (all pre-tax) and you want to convert $20,000 to a Roth. You owe tax on the full $20,000 because all your traditional IRA money is pre-tax. But if you had $80,000 pre-tax and $20,000 after-tax (from previous non-deductible contributions), and you convert $20,000, the IRS treats it as 80% pre-tax and 20% after-tax. You owe tax on $16,000 of the conversion.

This rule applies to traditional IRAs, not 401(k)s. If you only have a 401(k) and no traditional IRA, the pro-rata rule does not affect you. If you do have a traditional IRA, talk to a tax professional before converting, because the calculation can be tricky.

Timing and tax planning: when to convert

The year you convert matters. If you are between jobs, retired, or in a low-income year, your tax bracket may be lower than usual. Converting in a low-income year means paying less tax on the conversion. Some people deliberately convert in years when they know their income will be depressed.

You can also split a conversion across multiple years. You do not have to move all $100,000 at once; you can convert $25,000 this year and $25,000 next year, spreading the tax bill across two returns. This can keep you in a lower bracket each year than a single large conversion would.

There is no deadline to convert — you can do it at any point after you leave the employer, or while employed if the plan allows in-service distributions. However, once you reach age 73, you must begin taking required minimum distributions (RMDs) from your traditional 401(k). Converting before then can reduce the size of future RMDs.

What happens after the conversion

Once money lands in your Roth IRA, it follows Roth rules. You can withdraw contributions (the amount you put in) at any time tax-free. Earnings (growth on that money) can be withdrawn tax-free after age 59½, provided the Roth IRA has been open for at least five years. The five-year clock starts the year you open the Roth IRA, not the year you convert.

You do not have to take required minimum distributions from a Roth IRA during your lifetime. This is one of the main advantages: the money can stay invested and grow tax-free indefinitely. When you pass away, your heirs inherit the Roth IRA and must withdraw it over a set period (usually 10 years under current rules), but they do not owe income tax on the withdrawals.

Frequently Asked Questions

Can I convert if I still have a 401(k) loan?

No. You cannot convert money from a 401(k) while a loan against that plan is outstanding. You must repay the loan first. If you leave the employer with an outstanding loan, the unpaid balance is treated as a taxable distribution and may trigger the early withdrawal penalty if you are under 59½.

What if I convert and then change my mind?

You can undo a conversion through a process called a recharacterization, but only under specific circumstances and within strict timelines. The rules changed in 2018; currently, you cannot recharacterize a conversion back to a traditional IRA. Once the money is in the Roth, it stays there. Consult a tax professional if you are considering this.

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

No. You can convert part of it and leave the rest in the 401(k) or roll it to a traditional IRA. This lets you control how much taxable income you report in a given year. You might convert $30,000 one year and $30,000 the next, rather than converting $60,000 all at once.

What if my 401(k) has employer match or profit-sharing money?

You can convert employer contributions just like your own. The entire amount — your deferrals, employer match, and any profit-sharing — is subject to the same tax rules. If it is in a traditional 401(k), it is all pre-tax, and you owe tax on the full conversion amount.

Can I convert a Roth 401(k) to a Roth IRA?

Yes, and there are no tax consequences. A Roth 401(k) is already after-tax money, so rolling it to a Roth IRA is a tax-free move. This is a rollover, not a conversion. You simply request a direct rollover from your plan to your Roth IRA custodian.

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.