In this guide
- The rule: a rollover that is taxed like a conversion
- How to convert a 401(k) to a Roth IRA: four paths
- When the plan will let the money go
- Pre-tax 401(k) to Roth IRA: what is taxed
- Roth 401(k) to Roth IRA: basis and the five-year clock
- Direct vs. indirect: why the 60-day route is expensive
- Why the pro-rata rule does not apply, and when it starts to
- Worked example: one year or four
- Paying the tax
- What can go wrong
- Decision rules
The rule: a rollover that is taxed like a conversion
Before 2008 a Roth IRA could accept money only from another Roth IRA, a traditional or SIMPLE IRA, or a designated Roth account; pre-tax 401(k) money had to pass through a traditional IRA first. Section 824 of the Pension Protection Act changed the definition of a qualified rollover contribution in IRC §408A(e) so that a Roth IRA can take rollovers from any eligible retirement plan, including 401(k), 403(b) and governmental 457(b) plans.
IRS Notice 2008-30, Q&A-1, sets out the mechanics. The distribution must be an eligible rollover distribution under §402(c)(4). It can move by direct rollover or within 60 days. And under §408A(d)(3)(A), you include in gross income whatever would have been taxable had you not rolled it over. The IRS calls it a rollover; for tax purposes it works like a conversion, and this guide uses both words.
So "can you roll a 401(k) into a Roth IRA" and "can you convert a 401(k) to a Roth IRA" have the same answer: yes. What it costs depends on the source of the money. Our IRA rollover chart maps every permitted destination.
How to convert a 401(k) to a Roth IRA: four paths
There are four routes, each with different timing, tax and paperwork. Here they are side by side.
| Path | Taxed? | Needs a distributable event? | Can you spread the tax over years? | Watch out for |
|---|---|---|---|---|
| 1. Pre-tax 401(k) → Roth IRA (direct conversion-rollover) | Yes, ordinary income in the distribution year; no 10% penalty on the amount rolled in | Yes: separation, 59½ in-service if the plan allows, plan termination, death or disability | Only by taking separate distributions, if the plan allows partial withdrawals | Large one-year income spike; 1099-R code G |
| 2. Roth 401(k) → Roth IRA (rollover) | No; 1099-R code H, zero taxable amount | Yes, same events | Not applicable | Five-year clock restarts unless you already have a Roth IRA; one-way door |
| 3. In-plan Roth conversion | Yes, ordinary income in the conversion year | No, if the plan offers it (§402A(c)(4)(E)) | Yes, if the plan allows repeated conversions | Plan menu, plan rules and plan fees still apply |
| 4. 401(k) → traditional IRA → Roth IRA | Rollover is tax-free; each later conversion is taxed in its own year | Yes, for the first step | Yes. This is the main reason to use it. | Creates a pre-tax IRA balance that spoils future backdoor Roth contributions; Form 8606 every conversion year |
Path 3 keeps the money in the plan; §402A(c)(4)(E) lets a plan transfer amounts "not otherwise distributable" into its designated Roth account, which is why it needs no distributable event. It is covered in our guide to the in-plan Roth conversion. Paths 1 and 4 are the real fork for anyone who has left an employer: same destination, very different tax.
When the plan will let the money go
The usual blocker is the plan, not the tax code. Under §401(k)(2)(B), elective deferrals may not be distributed earlier than severance from employment, death, disability, plan termination, hardship or, in a profit-sharing or stock bonus plan, age 59½ (the statute adds two narrow cases: qualified reservist distributions and the removal of a lifetime-income investment option). Hardship distributions cannot be rolled over at all, so they are no help here. In practice the money becomes available in one of three ways.
- You separate from service. At any age, the whole vested balance becomes distributable. What else to weigh at that point, such as force-outs, loan offsets and vesting, is covered in what happens to your 401(k) when you leave a job.
- You reach 59½ and the plan permits in-service withdrawals. Many plans do, but it is optional. Check the summary plan description.
- The source is distributable at any time. Some plans let you withdraw rollover contributions, after-tax contributions or vested employer money before 59½. The in-service withdrawal guide covers which sources usually qualify.
One hard limit applies once you reach RMD age. A required minimum distribution cannot be rolled over, so it cannot be converted either. The year's RMD has to come out of the plan first, as a taxable distribution, and only the rest can go to a Roth IRA. The same first-dollars-out logic is explained in does a Roth conversion count as an RMD.
Pre-tax 401(k) to Roth IRA: what is taxed
In a 401(k) to Roth IRA conversion, every pre-tax dollar that lands in the Roth IRA is included in gross income for the year of the distribution. That includes elective deferrals, employer match, profit-sharing and all earnings on them. The plan reports it on Form 1099-R with the total in box 1, the taxable amount in box 2a, any after-tax basis in box 5 and code G in box 7a (2026 instructions). Our Roth conversion 1099-R guide walks through the return.
Two things are not taxed. The first is after-tax (non-Roth) contributions, which come back as basis. The second is the 10% additional tax. Notice 2008-30, Q&A-3, citing §408A(d)(3)(A)(ii), confirms §72(t) does not apply to the amount rolled into the Roth IRA, even if you are 45. The penalty can still apply later. If you withdraw the converted amount within five taxable years and before 59½, §408A(d)(3)(F) applies §72(t) "as if such portion were includible in gross income." That is a separate clock for each conversion year, explained in the Roth conversion five-year rule.
The decision is also final. For tax years after 2017, a rollover from a 401(k) to a Roth IRA cannot be recharacterized. If markets drop 30% the month after you convert, you still owe tax on the higher value. That is a reason to size conversions carefully, and it argues for spreading them out.
Roth 401(k) to Roth IRA: basis and the five-year clock
A direct rollover from a designated Roth account to a Roth IRA is not taxed. The plan reports the amount in box 1, zero in box 2a and code H. Treas. Reg. §1.408A-10 sets out how it is treated afterward, and two of its answers matter most.
Basis travels, but only some of it. Under Q&A-3, the part of the rollover that was your investment in the contract, meaning your Roth deferrals, is treated as regular-contribution basis in the Roth IRA. That basis can be withdrawn tax-free and penalty-free at any time under the Roth IRA ordering rules. The rest is treated as earnings. If the plan distribution was already qualified, meaning age 59½ or older and five years of plan participation, the entire amount is treated as a regular contribution.
The plan's clock does not travel. Under Q&A-4, the Roth IRA's five-year clock starts with the earlier of your first Roth IRA contribution year or the year of the rollover, and the two five-year periods "are determined independently." Someone with a 12-year-old Roth 401(k) who opens a first Roth IRA in 2026 to receive it starts a new clock, and earnings withdrawn before 2031 are not qualified. A Roth IRA you funded years ago, even with a small amount or a backdoor contribution, avoids this. The Roth IRA five-year rule has the detail.
Designated Roth accounts lost their lifetime RMDs under SECURE 2.0 from 2024, so the case for moving Roth 401(k) money now rests on investment choice, fees and consolidation, weighed against the stronger creditor protection most ERISA plans give. Under Q&A-5, the move cannot be reversed: Roth IRA money can never go back into a designated Roth account.
Direct vs. indirect: why the 60-day route is expensive
If the plan pays the money to you, it must withhold 20% under §3405(c), even if you intend to roll it over. To get the full amount into the Roth IRA within 60 days, you have to make up that 20% from other cash. Any amount you do not deposit is a distribution, taxable and possibly subject to the 10% penalty. Take a $500,000 pre-tax balance paid to you. You receive $400,000, and $100,000 goes to the IRS as withholding. Converting the whole $500,000 means finding $100,000 elsewhere within 60 days and waiting for a refund until you file.
A direct rollover avoids all of this. Notice 2008-30, Q&A-6, confirms there is no mandatory withholding on a direct rollover to a Roth IRA, "even if the distribution is includible in gross income." The plan may agree to voluntary withholding, but that is your choice. A check made payable to the Roth IRA custodian for your benefit counts as a direct rollover. The 60-day rollover rule page covers what happens if a check comes to you by mistake. The IRA once-per-12-months limit does not apply to plan-to-IRA rollovers.
Why the pro-rata rule does not apply, and when it starts to
The pro-rata rule in §408(d)(2) treats all your traditional, SEP and SIMPLE IRAs as one account when you convert. It applies to IRA distributions. A distribution from a 401(k) is not one, so your IRA balances have no effect on a direct 401(k) to Roth IRA rollover, and the rollover does not change your IRA basis.
The plan has its own allocation rule for after-tax money: any distribution carries a proportional share of pre-tax and after-tax dollars. But Notice 2014-54 lets you split a single distribution sent to several destinations. Pre-tax dollars can go to a traditional IRA, untaxed. After-tax contributions can go to a Roth IRA, also untaxed. The pre-tax earnings on the after-tax money can follow either way. That split is how a mega-backdoor Roth gets money out of the plan.
Path 4 is where the IRA pro-rata rule returns. Rolling pre-tax 401(k) money to a traditional IRA gives you a pre-tax IRA balance. If you also make backdoor Roth contributions, Form 8606 measures your basis against the value of all traditional, SEP and SIMPLE IRAs on December 31 of the conversion year, plus the amount converted (Form 8606 instructions, lines 6 to 10). With a $900,000 rollover IRA and a $7,500 backdoor conversion, the nontaxable share is $7,500 ÷ $907,500, about 0.8%, so about 99% of the conversion is taxable. If you are still making backdoor contributions, either finish converting the rollover IRA by year-end or roll pre-tax IRA money into a current employer plan that accepts it.
Worked example: one year or four
Take a married couple filing jointly who retired at 61 in 2026. They have $1.2 million in a pre-tax 401(k) and $90,000 of taxable income after the standard deduction. The rates are the 2026 joint brackets from Rev. Proc. 2025-32: 12% runs from $24,800 to $100,800, 22% to $211,400, 24% to $403,550, 32% to $512,450, 35% to $768,700, and 37% above that.
| Approach | Converted | Federal tax on the conversion | Average rate |
|---|---|---|---|
| Path 1: entire balance direct to Roth IRA in 2026 | $1,200,000 | $389,160 | 32.4% |
| Path 4: roll to traditional IRA, convert to the top of 24% (2026 only) | $313,550 | $71,744 | 22.9% |
| Path 4: $300,000 a year for four years at 2026 brackets | $1,200,000 | $273,968 | 22.8% |
The one-year conversion pushes $521,300 of income into the 37% bracket. Spreading it over four years keeps every dollar at 24% or below and saves about $115,000 in federal tax, before state tax. The figures leave out growth during the four years, later bracket indexing, state tax, the 3.8% net investment income tax that a higher MAGI can trigger on other investment income, and Medicare IRMAA. Social Security sets each year's IRMAA from the tax return two years earlier, so in this example the 2028 and 2029 conversions, at ages 63 and 64, set the couple's first two years of Medicare premiums; how to avoid IRMAA explains the thresholds. Each of these makes a single large year look worse, not better. To run your own numbers, use the Roth conversion calculator. The Roth conversion guide covers bracket-filling in depth.
Path 1 is not always worse. A pre-tax balance of $150,000 and a year with unusually low income, such as a sabbatical, a gap between jobs, or a business loss, can fit inside the 22% or 24% bracket in one go. Direct-to-Roth is then cleaner than path 4 because it never creates a traditional IRA balance. What matters is the size of the balance compared with your bracket room, not which path is "the" right one.
Paying the tax
A conversion is worth the most when the tax is paid from a taxable account: every dollar of tax paid from outside the IRA leaves a dollar more growing tax-free inside it. Withholding from the distribution shrinks the Roth and, under 59½, exposes the withheld amount to the 10% additional tax.
With no mandatory withholding on a direct rollover, the bill comes due in April unless you plan for it. The usual protection is the estimated-tax safe harbor in IRC §6654(d)(1). If the AGI on last year's return was above $150,000 ($75,000 if married filing separately), paying 110% of last year's tax through withholding or timely estimates avoids the underpayment penalty, however large this year's conversion is. The balance is then due by the filing deadline. Wage earners can also raise W-2 withholding late in the year, which is treated as paid evenly through the year. Note that the conversion has to be completed by December 31. There is no April extension of the kind IRA contributions get.
What can go wrong
Most of the damage in these transactions comes from execution, not the decision. Four failures account for nearly all of it.
- The 20% withholding on an indirect rollover. If the plan cuts the check to you, 20% is gone before you see it. On the $500,000 example above, redepositing only the $400,000 you received leaves $100,000 treated as a distribution: taxable, and subject to a further $10,000 of §72(t) tax if you are under 59½ with no exception. Ask for a direct rollover, payable to the Roth IRA custodian for your benefit.
- The 60-day clock. An indirect rollover must be completed within 60 days of receipt. Miss it and the entire amount is a distribution. The IRS allows a self-certified waiver for a short list of reasons, such as a custodian error or serious illness, but "I was busy" is not on it.
- A missed or wrong Form 8606. A direct plan-to-Roth IRA rollover (path 1) is reported on Form 1040, not on Form 8606 Part II, so there is nothing to miss. Path 4 is different: every conversion from the traditional IRA goes on Form 8606 for that year, and any after-tax plan money you rolled into the traditional IRA has to be entered as basis on line 2 the first time. Skip that, and the same dollars are taxed twice when you convert.
- Losing the after-tax split. Notice 2014-54 only works if you direct the plan, at the time of the distribution, to send pre-tax dollars to one account and after-tax dollars to the Roth IRA. Take the after-tax money as a separate distribution in a later month and it comes out pro-rata with pre-tax dollars. Let it land in a traditional IRA by default and it becomes IRA basis you will track on Form 8606 for years.
Decision rules
- Roth 401(k) money only: roll it directly to a Roth IRA you have already funded, if you want the IRA's investment menu or simpler accounts. Without an existing Roth IRA, consider whether a new five-year clock matters for your timing.
- Pre-tax balance that fits your bracket room this year: path 1, a direct rollover to the Roth IRA. It is one transaction and leaves no IRA balance to complicate backdoor contributions.
- Pre-tax balance several times your bracket room: path 4. Roll to a traditional IRA and convert in tranches. If you still make backdoor contributions, plan which years they happen.
- Still employed and under 59½: path 3, if the plan offers it. Otherwise wait for a distributable event.
- Before moving anything out of the plan: check for employer stock with NUA, which loses its capital-gains treatment if rolled to an IRA. Also check the rule of 55, which does not follow money into an IRA, and any outstanding loan.
Which route fits depends on your bracket over the next several years, your state, your liquidity to pay the tax and your estate plan. Review the numbers with your CPA before electing a distribution, because a rollover to a Roth IRA cannot be undone.