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, but treats it as taxable income in the year you convert. That means if you convert $50,000, you will owe federal income tax on that $50,000 as if you earned it that year — on top of any other income you made. You do not have to convert your entire 401(k) at once; you can convert part of it and leave the rest where it is.

The reason people do this: money in a Roth IRA grows tax-free, and you never have to take withdrawals in retirement. A traditional 401(k) requires you to start withdrawing at age 73 (as of 2023), and those withdrawals are taxed as income. If you think you will be in a higher tax bracket later, or you want to leave money to heirs without tax consequences, a Roth conversion can make sense — but only if you can afford to pay the tax bill without raiding the money you are converting.

Key Takeaways

  • Converting a 401(k) to a Roth IRA triggers federal income tax on the amount you convert in that tax year.
  • You must have earned income or be receiving Social Security to convert; you cannot convert if you have no income that year.
  • If your 401(k) contains pre-tax and after-tax money, the IRS requires you to convert them proportionally — you cannot cherry-pick only the after-tax portion.
  • The conversion happens directly from the 401(k) plan to the Roth IRA; if money touches your hands first, it becomes a taxable distribution and may trigger penalties.
  • You have until the tax filing deadline (usually April 15 the following year) to undo a conversion if you change your mind, though this is rare.

The tax bill: what you owe and when

When you convert, the IRS counts the converted amount as ordinary income for that tax year. If you earn $60,000 and convert $30,000, your taxable income for the year becomes $90,000. You will owe federal tax at your marginal rate — the tax bracket you fall into based on your total income. State income tax also applies in most states.

The tax is due when you file your return the following April, not when you do the conversion. This matters because you need to plan ahead: if you know you will convert in December, you should set aside money now to pay the tax bill in April. Many people make a mistake here — they convert $50,000 but do not have $15,000 sitting aside to pay the tax. If you use money from the conversion itself to pay the tax, you lose that money from your retirement savings and may owe an additional 10% early withdrawal penalty if you are under 59½.

There is no penalty for the conversion itself if you are any age. The 10% early withdrawal penalty only applies if you take money out of the Roth IRA before age 59½ and before the account has been open for five years — but the conversion itself does not trigger that penalty.

Who can convert and what you need from your 401(k) plan

You can convert if you have a 401(k) from a current or former employer. You cannot convert if you have no earned income that year — the IRS requires that you have taxable income to convert. If you are retired and living on Social Security alone, you cannot convert. If you are retired but have a part-time job or rental income, you can convert up to the amount of that income.

Before you start, contact your 401(k) plan administrator (usually your former employer's HR department or a third-party plan custodian) and ask whether the plan allows in-service distributions to a Roth IRA. Not all plans permit this. If your plan does not allow it, you must wait until you leave the job, turn 59½, or reach your plan's retirement age — then you can roll the money out. Some plans allow you to convert only after you have separated from the employer.

You will need the name and address of your Roth IRA custodian (the bank or brokerage holding your Roth account). The 401(k) plan will send the money directly to that custodian in your name. This is called a trustee-to-trustee transfer, and it is the only way to do a conversion without triggering extra taxes or penalties.

The pro-rata rule: why you cannot convert only the after-tax money

If your 401(k) holds both pre-tax contributions (the money you deducted from your paycheck) and after-tax contributions (money you put in after paying income tax), the IRS does not let you convert only the after-tax portion. Instead, you must convert them proportionally based on the total balance.

Example: your 401(k) has $100,000 total — $80,000 pre-tax and $20,000 after-tax. If you convert $50,000, the IRS treats it as $40,000 pre-tax and $10,000 after-tax. You owe income tax on the $40,000 pre-tax portion, but not on the $10,000 after-tax portion (you already paid tax on that). This rule applies across all your IRAs and 401(k)s combined, not just one account.

The pro-rata rule is one reason people sometimes convert their entire 401(k) at once — to avoid the complexity of splitting pre-tax and after-tax money. If you have a large after-tax balance and a small pre-tax balance, converting everything might result in less total tax than converting in pieces over several years.

How the conversion actually happens

Contact your 401(k) plan administrator and request a direct rollover to your Roth IRA. Provide them with your Roth IRA custodian's name, address, and your account number. The plan will prepare a check or electronic transfer in your name, made payable to your Roth IRA custodian (the check will say something like "FBO [Your Name]" — for benefit of).

The money should go directly from the 401(k) custodian to the Roth IRA custodian. If the check comes to you instead, you have 60 days to deposit it into the Roth IRA yourself, but this creates risk: if you miss the deadline, the IRS treats it as a taxable withdrawal, and you may owe the 10% early withdrawal penalty on top of income tax. It is safer to ask the plan to send it directly.

The Roth IRA custodian will confirm receipt and add the money to your account. The conversion is complete once it is deposited. You will receive a Form 1099-R from the 401(k) plan showing the amount converted, and you will report this on your tax return when you file.

Timing: when conversions make sense

People often convert in years when their income is lower than usual — a year they took unpaid leave, retired mid-year, or had a business loss. Converting when you are in a lower tax bracket means you pay less tax on the conversion. If you are still working and earning a high salary, converting might push you into a higher bracket and cost more in taxes.

Some people convert gradually over several years, converting a small amount each year to spread the tax bill across multiple years and stay in a lower bracket. Others convert all at once if they expect their income to rise significantly in future years.

You cannot undo a conversion after the tax filing deadline (usually April 15 the following year). Before 2018, you could reverse a conversion if you changed your mind, but that option no longer exists. Once you convert, the money is in the Roth IRA and the tax is owed.

What happens to your 401(k) after conversion

Converting does not close your 401(k). The money you converted leaves the account, but any remaining balance stays where it is. You can leave it there, convert more of it later, or roll it to an IRA if you leave the job. If you are still employed and the plan allows it, you can keep contributing to the 401(k) while also converting portions of it.

If you are no longer employed, you cannot contribute to that 401(k) anymore. You can only roll it out or leave it there. Some former employers require you to roll out small balances (under $5,000) within a certain time frame, so check your plan documents or contact the administrator to confirm.

Frequently Asked Questions

Can I convert my 401(k) if I am still working at the company?

Only if your plan allows in-service distributions. Many plans do not. Contact your HR department or plan administrator to ask. If the plan does not allow it, you must wait until you leave the job, reach age 59½, or hit your plan's normal retirement age.

What if I cannot afford to pay the tax bill?

Do not convert. The tax is due the following April, and you must pay it from money outside the conversion. If you use the converted money to pay the tax, you lose that retirement savings and may owe an additional penalty. Only convert if you have the tax money available separately.

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

No. You can convert part of it and leave the rest in the 401(k). However, if your 401(k) contains both pre-tax and after-tax money, the pro-rata rule applies to each conversion — you cannot convert only the after-tax portion.

What if the money goes to me instead of the Roth IRA custodian?

You have 60 days to deposit it into the Roth IRA yourself. If you miss the deadline, the IRS treats it as a taxable withdrawal and you may owe a 10% early withdrawal penalty if you are under 59½. It is safer to ask the plan to send it directly to the Roth IRA custodian.

Can I undo a conversion if I change my mind?

No, not anymore. Before 2018, you could reverse a conversion, but that option ended. Once you convert, the money is in the Roth IRA and the tax is owed. Plan carefully before you convert.