Moving Money From Your 401(k) to a Roth IRA

How a 401(k)-to-Roth conversion works

You move money from a 401(k) into a Roth IRA by taking a distribution from the 401(k) and depositing it into the Roth within 60 days. The IRS treats this as a taxable event: you owe income tax on the full amount you convert in that tax year, even though you're moving the money to a tax-free account. The money then grows tax-free in the Roth, and you can withdraw it tax-free in retirement (after age 59½ and once the account has been open five years).

The conversion itself is straightforward—you contact your 401(k) plan administrator, request a distribution, and deposit the check or transfer into your Roth IRA. But the tax bill is the real decision: you're paying tax now to avoid tax later. That trade-off makes sense for some people and not for others, depending on your current income, your expected retirement income, and how much you're converting.

Key Takeaways

• A 401(k)-to-Roth conversion requires you to pay income tax on the amount you move, calculated at your tax rate for that year.
• You have 60 days from the date you receive the 401(k) distribution to deposit it into a Roth IRA, or the IRS treats it as a withdrawal subject to the 10% early-withdrawal penalty if you're under 59½.
• Direct transfers (trustee-to-trustee) avoid the 60-day window and the 20% withholding that applies to checks sent to you, making them the safer route.
• You cannot convert a 401(k) while you're still employed at the company that sponsors the plan, unless the plan document allows in-service conversions.
• Roth conversions are permanent—you cannot undo them by filing an amended return, so the tax consequences are locked in for the year you convert.

When you can convert: employment status and plan rules

The timing of a conversion depends on whether you still work for the employer sponsoring the 401(k). If you are still employed, most 401(k) plans do not allow you to convert money to a Roth while the plan is active. You must either leave the job, reach age 59½ (at which point some plans allow in-service conversions), or work for a plan that explicitly permits in-service Roth conversions in its document.

Once you leave the job—whether you retire, change employers, or are laid off—you can convert the 401(k) to a Roth IRA at any time. You do not have to wait until you reach a certain age. This is why many people convert after leaving a job: they have access to the money and can make the decision on their own timeline.

Before you request a conversion, ask your 401(k) plan administrator whether your specific plan allows in-service conversions. The answer is in the plan's summary plan description (SPD), which the plan is required to provide. If the plan does not allow it and you're still employed, you'll need to wait until you separate from the company.

Direct transfer versus taking a distribution

You have two ways to move the money: a direct transfer (also called a trustee-to-trustee transfer) or a distribution to you followed by a deposit into the Roth. The direct transfer is simpler and safer. Your 401(k) plan sends the money directly to the Roth IRA custodian, bypassing your hands entirely. There is no 60-day deadline, no withholding, and no risk of accidentally missing the window.

If you take a distribution to yourself, the 401(k) plan withholds 20% of the amount for federal income tax. You then have 60 days to deposit the full amount (including the 20% that was withheld) into the Roth. If you don't deposit the full amount within 60 days, the shortfall is treated as a taxable withdrawal. If you're under 59½, you also owe a 10% early-withdrawal penalty on the amount not deposited. This is a common trap: you receive a check for $8,000 (after 20% withholding on a $10,000 conversion), but you need to deposit $10,000 into the Roth within 60 days to avoid penalties.

For this reason, request a direct transfer whenever possible. Contact your 401(k) plan administrator and ask them to transfer the funds directly to the Roth IRA custodian. You'll need to provide the Roth IRA account number and the custodian's contact information.

The tax bill: calculating what you owe

When you convert a 401(k) to a Roth, you owe income tax on the amount converted at your ordinary income tax rate for that year. If you convert $50,000 and your tax bracket is 24%, you owe $12,000 in federal income tax. You may also owe state income tax, depending on where you live.

The tax is due when you file your return for the year of the conversion. You do not pay it upfront; instead, you report the conversion on Form 8606 (Nondeductible IRAs) and include the taxable amount in your income for the year. If you expect a large tax bill, you can make quarterly estimated tax payments to avoid penalties for underpayment.

The conversion also increases your income for that year, which can affect other tax items: it may reduce the amount of deductions you can claim, increase the tax on Social Security benefits if you're retired, or push you into a higher tax bracket. Before converting a large amount, consider running the numbers with a tax professional to see the full impact on your return.

The pro-rata rule: what happens if you have other IRAs

If you have a traditional IRA, SEP IRA, or SIMPLE IRA in addition to the 401(k) you're converting, the pro-rata rule affects how much of the conversion is taxable. The rule treats all your IRAs (and the 401(k) being converted) as a single pool for tax purposes. If part of that pool is pre-tax money and part is after-tax money, the conversion is taxed proportionally.

For example: you have a traditional IRA with $90,000 in pre-tax contributions and $10,000 in after-tax contributions (total $100,000). You convert $50,000 from your 401(k) to a Roth. The pro-rata rule says 90% of your total IRA assets are pre-tax, so 90% of the $50,000 conversion ($45,000) is taxable. The remaining $5,000 is not taxed because it represents your after-tax contributions.

This rule applies even if you don't touch the traditional IRA—it's calculated based on the total balance across all IRAs on December 31 of the conversion year. If you have after-tax money in an IRA and want to convert only that portion, you cannot isolate it; the rule requires you to include all IRAs in the calculation. One workaround is to roll the traditional IRA into your 401(k) plan (if the plan accepts rollovers) before converting, which removes it from the pro-rata calculation.

The 60-day deposit window and what happens if you miss it

If you take a distribution check instead of requesting a direct transfer, you have exactly 60 days from the date you receive the check to deposit it into the Roth IRA. The 60 days is measured from the date the check is issued or the funds are transferred to you, not from the date you request the distribution. If day 60 falls on a weekend or holiday, the deadline does not extend.

If you miss the 60-day window, the IRS treats the distribution as a taxable withdrawal, not a conversion. You owe income tax on the full amount, and if you're under 59½, you also owe a 10% early-withdrawal penalty. The money does not go into the Roth, and you cannot recover it by depositing it later. This is permanent and cannot be fixed by filing an amended return.

The IRS does have a procedure to request a waiver of the 60-day rule in cases of financial hardship or circumstances beyond your control, but waivers are rare and require filing Form 8329 with the IRS. The safest approach is to use a direct transfer and avoid the 60-day deadline altogether.

Conversions are permanent: no take-backs

Once a conversion is complete, you cannot undo it. Prior to 2018, the IRS allowed recharacterizations—a way to reverse a conversion if the account value dropped and you wanted to avoid the tax. That option is no longer available. If you convert $100,000 and the market drops and the account is worth $70,000 six months later, you still owe tax on the full $100,000. You cannot file an amended return to reverse the conversion.

This means the decision to convert is final for tax purposes. Before converting, think carefully about whether you can afford the tax bill and whether the long-term benefit of tax-free growth in the Roth outweighs paying tax now. If you're uncertain, you can convert a smaller amount first to see how it affects your taxes, then decide whether to convert more in a future year.

Frequently Asked Questions

Can I convert my 401(k) to a Roth if I'm still working?

Not unless your plan allows in-service conversions or you've reached age 59½. Check your plan's summary plan description or ask your plan administrator. If the plan doesn't allow it, you must leave the job first. Once you separate from the employer, you can convert at any time.

What happens if I don't have enough cash to pay the tax bill?

You can pay the tax from other sources—savings, a loan, or income from your job. You cannot use money from the 401(k) itself to pay the tax without creating additional tax consequences. Some people convert a smaller amount in one year and more in a future year to spread the tax bill across multiple years.

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

No. You can convert part of the 401(k) and leave the rest in the plan (if you're no longer employed) or roll it to a traditional IRA. This lets you control how much taxable income you recognize in any given year. You can also do multiple conversions over several years.

What if my 401(k) has employer matching contributions?

Employer contributions are pre-tax money, so they are fully taxable when converted. There is no special treatment for matching contributions. The entire amount you convert—whether it's your contributions, employer contributions, or investment gains—is subject to the pro-rata rule if you have other IRAs.

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

No. A 401(k) loan is not a distribution, so it cannot be converted. You can only convert money that is actually distributed from the plan. If you have an outstanding loan, you'll need to repay it or let it default (which triggers a taxable distribution) before converting the remaining balance.