Can You Convert a 401(k) to a Roth IRA? (w/Examples) + FAQs

Quick Answer

Yes. For tax year 2025, you can convert a traditional 401(k) to a Roth IRA. You move pre-tax money into a Roth, pay ordinary income tax on the converted amount that year, and gain tax-free growth and tax-free withdrawals in retirement. There is no income limit on conversions.

This article reflects federal rules as of June 2026 and covers tax year 2025. State rules vary — confirm current figures before you file. Tax law changes often, so check the latest numbers.

You can move your old 401(k) into a Roth IRA, but the IRS treats every pre-tax dollar you convert as taxable income for the year you convert it. That means a large conversion can push you into a higher tax bracket, raise your Medicare premiums two years later, and trigger a surprise tax bill if you do not plan the cash to pay it.

The stakes are real and the timing matters. Roughly 24.3 million U.S. households owned Roth IRAs in mid-2024, and many fund them through conversions rather than direct contributions. A conversion done in the wrong year, or with money pulled from the wrong account, can cost you thousands in extra tax and penalties that you can never get back.

Here is what you will learn:

• 💰 How to figure the exact tax you will owe on a conversion, with worked math you can copy.
• 🧾 The two ways to move the money — and why one of them can cost you 20% upfront.
• ⚖️ The pro-rata rule and the 5-year rules that trap people who skip the fine print.
• 🩺 How a big conversion quietly raises your Medicare premiums and ACA costs later.
• 🛑 The seven costliest mistakes and exactly how to avoid each one.

What a 401(k)-to-Roth Conversion Actually Is

A conversion is when you move money from a pre-tax retirement account into a Roth account and pay the income tax now so future growth and withdrawals are tax-free. The IRS treats this transfer as a taxable event when pre-tax dollars land in a Roth, even though you are not spending the money.

Your traditional 401(k) was funded with pre-tax dollars. You never paid income tax on those contributions or their growth. When you convert that money to a Roth IRA, the IRS finally collects the tax it deferred — all in the year you convert. The consequence of ignoring this is a tax bill you did not budget for, sometimes tens of thousands of dollars.

A common misconception is that a conversion is a free transfer like moving cash between checking accounts. It is not. Every pre-tax dollar you convert is added to your taxable income for the year, the same as a paycheck. What you should do is estimate the tax before you convert, then decide how much to move so you stay in a bracket you can afford.

There are several different moves people lump under “convert my 401(k),” and they are taxed differently. Knowing which one you are doing is the difference between a clean transfer and an expensive mistake.

Traditional 401(k) to Roth IRA

This is the classic taxable conversion. You take pre-tax 401(k) money and move it into a Roth IRA, and the full pre-tax amount becomes taxable income that year. Vanguard describes this as moving funds from a pre-tax account into a Roth.

The consequence of doing this without planning is a bracket jump. If you convert $80,000 on top of a $90,000 salary, part of that conversion is taxed at 24% instead of the 12% or 22% you might expect. What you should do is run the numbers first and consider splitting the conversion across two or more tax years.

Roth 401(k) to Roth IRA

This is not a taxable conversion. Money in a designated Roth 401(k) was already taxed, so rolling it to a Roth IRA is generally tax-free and is treated as a transfer, not a new contribution.

The misconception here is that people fear a tax bill that does not exist. There is no income tax on a Roth-to-Roth direct rollover. What you should do is request a direct rollover so you do not break the holding period, and confirm your new Roth IRA’s 5-year clock.

After-Tax 401(k) to Roth IRA (Mega Backdoor)

Some 401(k) plans let you make extra after-tax contributions beyond the normal limit, then move those dollars to a Roth. The IRS allows a direct rollover of after-tax amounts to a Roth IRA, with the pre-tax earnings on those contributions going to a traditional IRA or being taxed.

The consequence of doing this wrong is owing tax on the earnings portion. What you should do is confirm your plan allows after-tax contributions and in-service distributions before you start — many plans do not.

Which Situation Applies to You?

The right move depends on where you are in life and how much you earn. Find yourself below, then read the sections that fit.

• You just left a job and have an old 401(k): you can convert directly to a Roth IRA, but watch the tax bill. Read the worked examples and the 20% withholding trap.
• You are a high earner locked out of direct Roth contributions: the conversion has no income limit, and the mega backdoor may apply. Read the pro-rata section closely.
• You are 5 to 10 years from retirement: partial conversions during low-income years can shrink future required withdrawals. Read the bracket-filling example.
• You are already on Medicare or near 63: a conversion raises your MAGI and can spike premiums two years later. Read the IRMAA section.
• You have a Roth 401(k): your rollover is tax-free, not a conversion. Read the Roth 401(k) section and skip the tax math.

How the Tax Works — With Worked Examples

The taxable amount of your conversion is the pre-tax money you move, added to your other income for the year. The 2025 federal brackets for a single filer rise from 10% up to 37%, with the 22% bracket covering taxable income from $48,476 to $103,350 and the 24% bracket from $103,351 to $197,300.

Because the U.S. system is marginal, only the dollars inside each bracket are taxed at that bracket’s rate. The consequence of forgetting this is overestimating your tax and skipping a smart conversion — or underestimating it and getting a shock at filing.

Example 1 — Maria, the job-changer

Maria is single, age 35, and earns a $90,000 salary. Her taxable income after the 2025 standard deduction is about $75,000, which sits in the 22% bracket. She left a job with a $40,000 traditional 401(k) and converts all of it to a Roth IRA.

Her conversion stacks on top of her $75,000. The first chunk (up to $103,350) is taxed at 22%, and the rest spills into the 24% bracket. Roughly $28,350 is taxed at 22% ($6,237) and about $11,650 at 24% ($2,796), for around $9,033 in federal tax on the conversion. What Maria should do is pay that tax from her savings, not from the 401(k), so the full $40,000 keeps growing tax-free.

Example 2 — David, the bracket-filler

David is single, age 60, recently retired, and has only $20,000 of taxable income this year before any conversion. He has room to “fill up” the 12% bracket, which for 2025 tops out at $48,475 of taxable income.

He converts $28,000, bringing his taxable income to $48,000 — still inside the 12% bracket. His tax on that conversion is about $3,360 (12% of $28,000). Next year he repeats the move. By spreading conversions across low-income years, David moves six figures into a Roth at a 12% rate instead of the 22% or 24% he would face later when required distributions begin.

Example 3 — Priya, the high earner

Priya earns $260,000 and is locked out of direct Roth IRA contributions because her 2025 MAGI exceeds the $165,000 single limit. Her plan allows after-tax contributions, so she uses the mega backdoor.

She contributes $30,000 of after-tax money to her 401(k), then rolls it to a Roth IRA. Because those dollars were already taxed, only the small earnings are taxable. If $200 of growth accrued before the rollover, she owes tax on just that $200, not the $30,000.

The Two Ways to Move the Money

How you move the money matters as much as how much you move. There are two methods, and one of them can cost you 20% upfront.

Direct rollover (the safe way)

In a direct rollover, your 401(k) administrator sends the money straight to your Roth IRA, often as a check made payable to the receiving institution. No mandatory withholding applies, and the full amount lands in your Roth.

What you should do is always request a direct rollover and confirm the check is payable to your IRA custodian, not to you personally. This single choice avoids the trap below.

60-day (indirect) rollover (the risky way)

If the plan pays the money to you, the IRS requires 20% mandatory withholding on the pre-tax amount, even if you plan to roll it over. You then have 60 days to deposit the full original amount into the Roth — including the 20% the plan kept — or the shortfall is treated as a taxable distribution.

The consequence is harsh. On a $40,000 distribution, the plan withholds $8,000 and sends you $32,000. To complete a full conversion, you must add $8,000 from your own pocket to deposit the whole $40,000 within 60 days, then recover the $8,000 as a refund at tax time. Miss the 60-day window and the gap becomes taxable, plus a 10% penalty if you are under 59½.

Rollover choice	Money outcome
Direct rollover to Roth IRA	Full balance moves; no 20% withheld; clean tax reporting
Check paid to you (indirect)	20% withheld upfront; you must replace it within 60 days or it is taxed and possibly penalized

The Pro-Rata Rule (Why Backdoor Roths Surprise People)

The pro-rata rule decides how much of a conversion is taxable when you hold both pre-tax and after-tax dollars in your traditional, SEP, and SIMPLE IRAs. You cannot cherry-pick only the after-tax dollars to convert tax-free.

The formula is straightforward: total after-tax (basis) divided by the total value of all your IRAs gives the tax-free percentage, which you multiply by the amount converted. The rest is taxable.

Pro-rata scenario	Taxable result
$7,000 after-tax basis, no other IRA money	Nearly 100% tax-free conversion
$7,000 after-tax basis but $93,000 pre-tax in IRAs	Only 7% of any conversion is tax-free; 93% is taxed

Say you have $7,000 of after-tax basis and $93,000 of pre-tax money across your IRAs, for $100,000 total. Only 7% of any conversion is tax-free, so converting $7,000 leaves about $6,510 taxable. The consequence of ignoring this is a tax bill on money you thought was already taxed. What you should do is consider rolling pre-tax IRA money into a current employer 401(k) first to “clear the decks,” since 401(k) balances are not counted in the pro-rata math.

This rule applies to IRAs, not to money still inside your 401(k). After-tax dollars rolled directly from a 401(k) to a Roth IRA follow the plan’s own pro-rata rules, which is why the mega backdoor can work cleanly.

The 5-Year Rules You Cannot Ignore

There are two separate 5-year clocks for Roth accounts, and confusing them costs people taxes and penalties. The Schwab explanation is the clearest starting point.

The first clock governs earnings. Your Roth IRA must be open for five years before you can withdraw earnings tax-free, and the clock backdates to January 1 of the year of your first Roth contribution or conversion. The consequence of withdrawing earnings early is income tax, plus a 10% penalty if you are under 59½.

The second clock applies to each conversion separately. If you convert and then withdraw those converted dollars before five years have passed and you are under 59½, you generally owe a 10% penalty on the pre-tax amount converted — even though you already paid income tax on it. What you should do is leave converted money untouched for at least five years, or wait until you are 59½, whichever protects you.

How a Conversion Affects Medicare and ACA

A conversion raises your modified adjusted gross income (MAGI), and MAGI drives more than your income tax. It can quietly raise your Medicare premiums and shrink your health-insurance subsidies.

Medicare’s IRMAA surcharge for 2025 kicks in when income exceeds $106,000 for single filers or $212,000 for joint filers, and it is based on your MAGI from two years earlier. A large conversion at age 63 can therefore spike your Part B and Part D premiums at age 65. What you should do is project two years ahead before converting if you are near Medicare age.

For people buying coverage on the ACA marketplace, a conversion can push MAGI above the subsidy threshold and claw back premium tax credits. The consequence can be thousands in repaid subsidies at tax time. What you should do is model the conversion against your subsidy cliff before pulling the trigger.

Forms, Deadlines, Costs, and Timing

A 401(k)-to-Roth conversion generates specific paperwork, and the IRS expects each piece. Getting the forms right is how you prove what was basis and what was actually taxable.

Your plan issues a Form 1099-R reporting the distribution, and your Roth custodian issues a Form 5498 reporting the rollover into the Roth. If any IRA after-tax basis is involved, you file Form 8606 with your Form 1040 to calculate the taxable portion; the conversion flows onto Form 1040 lines 4a and 4b. For a step-by-step walkthrough, see a dedicated How to Fill Out Form 8606 guide.

On timing and cost: a direct rollover usually completes in one to three weeks. There is no IRS deadline to convert — you can do it any time — but the conversion counts in the calendar year the money moves, so a December conversion lands on that year’s return. A DIY conversion is free; a CPA or fee-only advisor to model a multi-year conversion plan typically runs a few hundred to a few thousand dollars, often worth it for large balances.

This article is educational and is not a substitute for advice from a licensed professional for your specific situation. When your conversion is large, spans multiple years, involves the pro-rata rule, or interacts with Medicare or ACA subsidies, a CPA or fee-only financial advisor can model the tax and save you far more than their fee.

Mistakes to Avoid

• Taking the check yourself. Triggers 20% withholding and a 60-day clock; miss it and the gap is taxed and penalized.
• Paying the tax from the 401(k) money. Shrinks your Roth balance and, under 59½, adds a 10% penalty on the withheld pre-tax amount.
• Ignoring the pro-rata rule. You owe tax on dollars you assumed were already taxed, sometimes 90%+ of the conversion.
• Converting too much in one year. Pushes you into the 32% or 35% bracket when spreading it would have kept you at 22% or 24%.
• Forgetting the IRMAA lookback. A big conversion at 63 spikes your Medicare premiums at 65.
• Touching converted money too soon. Withdrawing within five years before 59½ triggers a 10% penalty on the converted pre-tax amount.
• Skipping Form 8606. Without it, the IRS can tax your after-tax basis twice, and you lose proof of what was already taxed.

Do’s and Don’ts

• Do request a direct rollover so no 20% is withheld and the full balance keeps compounding.
• Do pay the conversion tax from outside cash, because that protects your Roth balance and avoids penalties.
• Do convert in low-income years, since filling up a low bracket locks in a lower lifetime tax rate.
• Do keep every 1099-R, 5498, and Form 8606, because they prove your basis and taxable amounts to the IRS.
• Do project two years of MAGI before converting near Medicare age, to avoid surprise premium surcharges.
• Don’t convert in a peak-earnings year unless you must, because top brackets waste the Roth’s advantage.
• Don’t withdraw converted funds within five years under 59½, or you invite the 10% penalty.
• Don’t assume your state follows federal rules, since conformity on conversions varies by state.
• Don’t forget held pre-tax IRA money, because it drags the pro-rata math against you.
• Don’t rush a December conversion without confirming it lands in the year you intend.

Pros and Cons

• Pro — Tax-free growth. Every dollar earned in the Roth after conversion is never taxed again, which compounds powerfully over decades.
• Pro — No required withdrawals. Roth IRAs have no lifetime required minimum distributions, so the money can grow untouched.
• Pro — No income limit to convert. High earners locked out of direct Roth contributions can still get money in this way.
• Pro — Tax-free inheritance. Heirs generally withdraw from an inherited Roth tax-free, easing their burden.
• Pro — Hedge against future rates. Paying tax now protects you if rates rise later.
• Con — Upfront tax bill. You owe ordinary income tax on the conversion this year, which can be large.
• Con — Bracket and MAGI spillover. A big conversion can raise your bracket, Medicare premiums, and ACA costs.
• Con — Five-year lockups. Converted money has penalty exposure if touched too soon.
• Con — No do-overs. Since 2018, conversions cannot be recharacterized, so a mistimed conversion is permanent.
• Con — Pro-rata complexity. Existing pre-tax IRA money can make a “tax-free” backdoor mostly taxable.

State Conformity — Does Your State Tax the Conversion?

Federal law taxes the conversion as ordinary income, but states do not all follow the federal treatment. Most states with an income tax also tax the converted amount the year you convert, while the nine states with no income tax — such as Florida, Texas, and Washington — impose no state tax on the conversion at all.

The consequence of assuming your state mirrors federal rules is an unplanned state tax bill on top of the federal one. What you should do is check your state’s department of revenue page on retirement-income conformity before converting, since a few states tax retirement distributions differently and timing your move after a relocation can change the result.

What to Do Next

1. Pull your latest 401(k) statement and confirm whether the balance is pre-tax, Roth, after-tax, or a mix.
2. Estimate the conversion tax by stacking the pre-tax amount on your other 2025 income against the brackets above.
3. Decide how much to convert this year to stay within a bracket you can afford, and consider splitting across years.
4. Set aside outside cash to pay the tax, so you never tap the converted money.
5. Call your 401(k) administrator and request a direct rollover to your Roth IRA — never a check to yourself.
6. If you are near Medicare age or on ACA coverage, project your MAGI two years out first.
7. Save your 1099-R and 5498, and file Form 8606 with your return if any after-tax basis is involved.
8. If the conversion is large or multi-year, hire a CPA or fee-only advisor before you act.

FAQs

Can you convert a 401(k) to a Roth IRA? Yes. For tax year 2025, you can move pre-tax 401(k) money into a Roth IRA. You pay ordinary income tax on the converted amount that year, then get tax-free growth and withdrawals later.

Is there an income limit to convert? No. Roth conversions have no income limit, unlike direct Roth contributions, which phase out above $165,000 for single filers in 2025. Anyone, at any income, can convert.

How much tax will I owe on the conversion? Your ordinary income rate on the pre-tax amount. The converted money stacks on your other income and is taxed at your marginal 2025 brackets, which range from 10% to 37%.

Should I pay the tax from the converted money? No. Pay from outside savings. Using the retirement money shrinks your Roth and, if you are under 59½, adds a 10% penalty on the withheld pre-tax amount.

What is the 20% withholding trap? A check paid to you triggers 20% mandatory withholding. You then must replace that 20% from your own cash within 60 days to complete a full conversion, or the shortfall is taxed.

Do I have to convert the whole balance at once? No. Partial conversions are allowed and often smarter. Spreading conversions across several low-income years keeps you in lower brackets and reduces lifetime tax.

Is a Roth 401(k) to Roth IRA rollover taxable? No. That money was already taxed, so a direct Roth-to-Roth rollover is generally tax-free and is treated as a transfer, not a new contribution.

What is the pro-rata rule? A rule that prorates taxable and after-tax IRA dollars. If you hold pre-tax IRA money, you cannot convert only your after-tax basis tax-free; the IRS taxes a proportional share.

Can I undo a conversion I regret? No. Since 2018, conversions cannot be recharacterized. Once you convert, the move and its tax are permanent, so plan carefully before you act.

Will a conversion raise my Medicare premiums? Yes, possibly. A conversion raises your MAGI, and the 2025 IRMAA surcharge starts above $106,000 single or $212,000 joint, based on income from two years earlier.

When is the deadline to convert? There is no deadline — but timing matters. A conversion counts in the calendar year the money moves, so a December conversion lands on that year’s tax return.

Does my state tax the conversion? Usually yes, if your state has an income tax. Most income-tax states tax the converted amount that year, while the nine no-income-tax states do not. Check your state’s revenue agency.

Word count: approximately 3,650 words. This article reflects federal rules as of June 2026 and covers tax year 2025; confirm current figures and your state’s rules before you file.