In-plan Roth conversion: converting inside your 401(k)

What an in-plan Roth conversion is

A Roth in-plan conversion is a rollover from one account in your employer plan to another account in the same plan: pre-tax money on one side, the plan's designated Roth account on the other. The IRS's own term is an in-plan Roth rollover, and it is available in 401(k), 403(b), and governmental 457(b) plans that maintain a designated Roth account.

The feature has two generations, and the second one is why this page exists. Since 2010, plans could let you convert amounts you were already entitled to withdraw. Since 2013, IRC §402A(c)(4)(E) lets a plan convert amounts that are not otherwise distributable — elective deferrals, matching and nonelective contributions, and governmental 457(b) annual deferrals — without treating the move as a violation of the plan's distribution restrictions (IRS Notice 2013-74). In plain terms: you can convert money you could not otherwise touch. That is the single most useful fact on this page, and it is the reason a mid-career employee with no access to her 401(k) balance can still build Roth money inside it.

What can be converted, if the plan allows it, is any vested balance including earnings — elective deferrals, employer matching and nonelective contributions, money you rolled in from a prior plan, after-tax employee contributions, and the earnings on all of it (IRS designated Roth account FAQs). Unvested money cannot be converted. Beyond the participant, only a surviving spouse beneficiary or an alternate payee who is a spouse or former spouse can elect one.

Whether your plan allows it

This is a plan feature, not a taxpayer right, and it is where most people's interest ends. Three conditions have to hold:

• The plan has a designated Roth account. And that account must also accept ordinary Roth elective deferrals — a plan cannot stand up a Roth account solely to receive in-plan conversions.
• The plan document permits in-plan Roth rollovers. Plans that adopted the feature had to amend for it; many never did, and it is not a protected benefit, so a plan is free to discontinue it later (Notice 2013-74, Q&A-7).
• Your specific money source is eligible. A plan may permit in-plan conversions of only otherwise distributable amounts — a much narrower window — or restrict them to certain sources, and it may cap how often you convert. Both restrictions are expressly allowed.

The practical move is to ask your plan administrator three questions in one email: does the plan permit in-plan Roth rollovers, which money sources are eligible, and how many conversions per year are allowed. The answers determine everything below.

The tax — and why nothing is withheld

The taxable amount is what you convert less any basis in it, and it is ordinary income in the year of the conversion. There is no special rate, no capital-gain treatment, and no income limit — the converted amount simply stacks on top of your wages at your marginal federal rate, plus state tax. For someone still working, that is the awkward part: you are converting on top of a full salary, in your highest-earning years.

Now the detail that catches people. A direct in-plan Roth rollover has no income tax withholding — the IRS instructs plan sponsors not to withhold on it. Nothing is deducted; the entire amount lands in the Roth account and the entire tax bill lands on your 1040. You are expected to cover it by raising your paycheck withholding or making an estimated tax payment for the quarter in which the conversion happens, or you risk an underpayment penalty.

One warning on the alternative route: if your plan lets you take a distributable amount in cash and roll it into the designated Roth account within 60 days, the plan must withhold 20% federal income tax on the untaxed amount even though you intend to roll it — leaving you to replace that 20% from savings. Use the direct route.

The fork: convert in place, or roll out then convert

Both routes end with Roth money, but they are different transactions governed by different rules, and the choice usually makes itself. An in-plan Roth conversion keeps the dollars inside the employer plan — you move them from the pre-tax side to the plan's designated Roth account, and you never need a distributable event, because §402A(c)(4)(E) lets a plan convert amounts that could not otherwise be paid out. Rolling out and then converting means first getting the money into an IRA while you still work — an in-service distribution — and then converting that IRA to a Roth IRA. The first step is the hard one: it requires the plan to permit an in-service withdrawal, and eligibility depends on your age and on which money source you're trying to move. That path is covered in full in its own guide; this page is about the version where the money never leaves. Said in one sentence: if your plan has a Roth account and allows in-plan conversions, you can convert without ever being eligible for a distribution — if it doesn't, your only route is out first, then convert.

In-plan conversion vs. IRA conversion, side by side

The lifetime-RMD row used to favor the IRA and no longer does: since 2024, designated Roth accounts are not subject to required minimum distributions while the owner is alive, matching Roth IRAs (IRS RMD FAQs). Beneficiaries of both are still subject to RMD rules. That change removed the main reason people used to rush Roth 401(k) money out to an IRA.

The two five-year clocks inside a plan

Two different five-year periods apply, they do different jobs, and conflating them is the most common error in this area. The pillar guide separates the equivalent IRA clocks in detail — see the two five-year rules — so here is only what changes inside a plan.

• The recapture clock (penalty). The conversion itself is never subject to the 10% additional tax on early distributions. But if the plan distributes any part of an in-plan Roth rollover within the five-taxable-year period beginning January 1 of the conversion year and ending December 31 of the fifth year, that amount becomes subject to the 10% tax under IRC §72(t) — unless a §72(t) exception applies or the distribution is allocable to the nontaxable portion of the conversion. The recapture does not trigger when you roll the money to another designated Roth account or to a Roth IRA — but the clock follows it, and a distribution from that receiving account inside the window still triggers the tax.
• The participation clock (tax on earnings). Earnings come out tax-free only from a qualified distribution, which requires a five-taxable-year period of participation plus age 59½, death, or disability. If an in-plan Roth conversion is the first contribution ever made to your designated Roth account, that clock starts on the first day of the taxable year of the conversion (Notice 2013-74, Q&A-8). Converting in December starts the clock retroactively to January 1 of that year — a free head start worth taking.

One sharp edge: the years your money sat in the plan's designated Roth account do not count toward the five-year clock on a Roth IRA you later roll it into. If you already have a Roth IRA that is more than five years old, that older clock governs and you're fine. If you don't, opening one now — even with a token amount — starts a clock you will want later. Our companion guide on the 10% penalty and the two five-year rules walks the ordering rules and every exception.

The restrictions that follow the money

Converting does not make locked money spendable. Under Notice 2013-74 (Q&A-3), when you convert an otherwise nondistributable amount, the converted dollars and their earnings remain subject to the same distribution restrictions that applied before the conversion. A 45-year-old who converts pre-tax elective deferrals still cannot take those dollars out of the plan until 59½ or another qualifying event under §401(k)(2)(B). The tax character changed; the access rules did not.

That is usually good news — it removes the temptation that makes the recapture rule dangerous. But it matters if you were converting in order to reach the money: conversion is a tax move, not a liquidity move. If liquidity is the goal, your question is really about an in-service withdrawal.

The mega-backdoor connection

The in-plan Roth conversion is the second half of the mega-backdoor Roth. The first half is making after-tax (non-Roth) employee contributions above your elective deferral limit; the second half is converting them — plus their earnings — into the plan's designated Roth account, which is exactly the transaction described on this page. After-tax employee contributions are expressly listed among the amounts eligible for an in-plan Roth rollover.

The room available is the gap between the §402(g) elective deferral limit of $24,500 in 2026 and the overall §415(c) limit of $72,000, less employer contributions (IRS, 2026 limits). Convert promptly and little taxable earning accrues first, so the tax cost is close to nothing. The strategy itself belongs to the pillar — see backdoor and mega-backdoor Roth and the advanced strategies guide. The point here is narrower: without the in-plan conversion feature, the mega-backdoor does not work at all.

Traps worth knowing before you sign

• It cannot be undone. An in-plan Roth rollover is irreversible once the transfer is made, and the amounts can never return to the transferring account. Recharacterization is unavailable. Size it against your bracket before submitting the form.
• Employer stock and NUA. An in-plan Roth rollover is treated as a distribution for purposes of determining eligibility for net unrealized appreciation treatment on employer securities (Notice 2013-74, Q&A-9). If you hold heavily appreciated company stock and are counting on an NUA lump-sum distribution later, talk to your CPA before converting anything.
• Bracket and cliff effects. The conversion income can push you into a higher bracket, pull other investment income into the 3.8% net investment income tax, and — if you're 63 or older — raise the income that sets your Medicare IRMAA surcharge two years later.
• No spousal consent is required for an in-plan Roth direct rollover, and the conversion is not treated as a distribution requiring it. Convenient, but it means nothing external stops an oversized conversion.
• Outstanding loans can travel. If the plan allows, an outstanding loan balance can be rolled in a direct in-plan Roth rollover so long as the repayment schedule doesn't change — but the loan balance is part of the taxable amount at the time of the rollover.

How to execute one

1. Confirm the feature exists — designated Roth account, in-plan rollovers permitted, and your money source eligible. Ask about frequency limits in the same message.
2. Size the amount against your bracket, not against your balance. Partial conversions across several years almost always beat one large one; the Roth conversion calculator shows the difference over a full retirement, and the rest of the calculator suite covers the IRMAA and RMD side effects.
3. Elect a direct in-plan rollover — never a cash distribution followed by a 60-day rollover, which triggers 20% mandatory withholding.
4. Fund the tax from outside. Increase your Form W-4 withholding for the rest of the year or make an estimated payment for the quarter of the conversion.
5. Record the conversion year — it starts both five-year clocks — and keep the confirmation. The administrator tracks your participation period, but you'll want the paper if the plan ever changes recordkeepers.
6. Check the Form 1099-R the following January. The conversion is reported even though no money left the plan.