Should You Really Rollover a 401k to a Roth IRA? – Avoid This Mistake + FAQs

Imagine unlocking tax-free growth for your retirement savings, but with an upfront price tag.

This is the core question behind “Should I rollover my 401(k) to a Roth IRA?” Converting a traditional 401(k) into a Roth IRA (a move often called a Roth conversion) can supercharge your retirement nest egg with tax-free earnings – yet it requires paying taxes now.

We’ll break down all the key factors to help you decide. You’ll learn:

• How a 401(k)-to-Roth IRA rollover works and how it differs from other options.
• Federal and state tax implications (so you won’t be caught off guard by a 💸 surprise tax bill).
• Wealth growth potential of a Roth IRA and how it might boost your future finances 🚀.
• Pros and cons of doing a Roth rollover, summarized in a handy table.
• Common mistakes and pitfalls to avoid when converting your 401(k).
• Important tax laws, rules, and even court rulings that could affect your decision.
• Real-life scenarios illustrating when a Roth conversion makes sense – and when it doesn’t.
• A concise FAQ section to address common concerns (in plain English).

What Is a 401(k)-to-Roth IRA Rollover (and Why It’s a Big Deal)

A 401(k)-to-Roth IRA rollover means moving money from your 401(k) retirement plan into a Roth IRA. Essentially, you’re taking dollars that have been growing tax-deferred (in a traditional 401(k)) and converting them into a Roth account where future growth and withdrawals will be tax-free. But there’s a catch: when you move pre-tax 401(k) money to a Roth IRA, you must pay income taxes on that money now, because Roth IRAs only hold after-tax dollars.

How It Works:

• Traditional 401(k) to Roth IRA: Your 401(k) contributions were pretax, meaning you never paid tax on them (or their earnings) while in the plan. Converting to a Roth IRA triggers a tax bill on those pretax funds at the time of rollover. After that, all growth in the Roth IRA is tax-free.

• Roth 401(k) to Roth IRA: If your 401(k) contributions were already Roth (after-tax) within your employer plan, rolling them to a Roth IRA does not trigger taxes. It’s a straight transfer of after-tax money to another after-tax account (and importantly, Roth 401(k) funds rolled into a Roth IRA will continue to grow tax-free and won’t be subject to required minimum distributions later 🎉).

Rollover vs. Direct Transfer vs. Conversion: You might hear different terms:

• Rollover generally means moving retirement funds from one account to another. In this case, it’s from a 401(k) to an IRA.

• A direct rollover (trustee-to-trustee transfer) means the funds go straight from your 401(k) plan to the Roth IRA provider, without you touching the money. This is the safest, recommended method to avoid any tax hiccups.

• We call it a Roth conversion because you are converting tax-deferred money into tax-free Roth money by paying taxes now. (By contrast, rolling a 401(k) into a traditional IRA is not a taxable event because the money stays in a pretax account.)

Why It’s a Big Deal: A Roth rollover gives you the opportunity for tax-free income in retirement. Once in the Roth IRA, your money can grow without future tax, and qualified withdrawals in retirement won’t cost a dime in taxes. This can be huge for your long-term wealth. However, doing it means voluntarily taking a tax hit today, which is why the decision requires careful thought. It often boils down to pay taxes now vs. pay taxes later and predicting which will cost you less.

Alternatives: If you choose not to roll into a Roth IRA, you typically have other options when leaving a job:

• Leave the money in your 401(k): Many employers allow keeping the plan as is (especially if your balance is above a certain threshold). No immediate tax, and your money stays tax-deferred. Downsides can be limited investment choices or fees, but you keep any unique plan benefits (like the ability to withdraw at age 55 penalty-free, or strong creditor protections under ERISA).

• Roll over to a Traditional IRA: This avoids any immediate tax bill (it’s a non-taxable rollover from one pretax account to another). You maintain tax deferral. Later, you can still choose to convert pieces of that IRA to Roth gradually if desired.

• Cash out (withdraw): Taking the money outright in cash leads to taxes and a 10% penalty if you’re under 59½. This option is almost always the worst for your retirement security 🚫 (your nest egg shrinks and you pay heavy taxes/penalties).

In summary, rolling over to a Roth IRA is essentially pre-paying taxes now in exchange for tax-free growth and withdrawals later. It’s a powerful strategy, but only if the conditions are right for you. So, when might it be right for you? Let’s look at the potential benefits next.

Why Consider a Roth IRA Rollover? 🚀 Top Benefits for Your Retirement

Rolling over to a Roth IRA can offer some powerful advantages for your financial future. Here are the major benefits that make a Roth conversion attractive:

• 💰 Tax-Free Withdrawals in Retirement: The headline benefit is that once your money is in a Roth IRA, all qualified withdrawals are completely tax-free. That includes all the investment growth over the years. In contrast, withdrawals from a traditional 401(k) or IRA will be taxed as income in retirement. Tax-free income can mean more spending money and less worry about tax rates when you’re older.

• No Required Minimum Distributions (RMDs): Traditional 401(k)s and IRAs force you to start withdrawing (and paying tax on) a portion each year once you reach age 73 (for those born 1951-1959, and 75 for those born 1960+ under current law). Roth IRAs do not have RMDs during your lifetime. You can let your money grow untouched for as long as you want. This is great for those who don’t need the funds at a certain age and want to maximize tax-free growth (and it can simplify estate planning, too).

• Tax Rate Arbitrage (Pay Taxes at a Lower Rate Now): If you suspect that your current tax rate is lower than what it will be in the future, converting now can save you money in the long run. For example, if your income (and tax bracket) is temporarily low – say you took a gap year, went back to school, or retired early – converting in those low-income years means you pay a smaller tax bill now and avoid potentially higher taxes later on withdrawals. Similarly, if you believe tax rates in general are likely to rise in the future (due to changing laws or fiscal conditions), getting into a Roth now locks in today’s rates.

• More Flexibility & Tax Diversification: Having a mix of tax-free (Roth) and tax-deferred accounts in retirement gives you tax diversification. This means more flexibility to manage your income in retirement. You could withdraw from your Roth in years you want to avoid pushing yourself into a higher tax bracket, since Roth money doesn’t count as taxable income. It’s like having a tax-free bucket of money to dip into when needed.

• Estate Planning Advantages: Roth IRAs can be great for leaving money to heirs. Your beneficiaries will inherit the Roth IRA and, while they will have to take distributions (usually within 10 years due to current inheritance rules), those withdrawals will be tax-free for them. This can be a huge advantage if your heirs are likely to be in high tax brackets. (Note: Inherited Roth IRAs still must be emptied within 10 years for most non-spouse beneficiaries, but no tax hit makes that much easier to manage.)

• Bypass Roth Contribution Limits: A Roth IRA rollover lets high-income individuals get money into a Roth IRA beyond the normal contribution limits. Normally, direct Roth IRA contributions are not allowed if your income is above a certain threshold, and even if allowed, contributions are capped at relatively low annual amounts. Converting a 401(k) to a Roth IRA has no income limit and no dollar cap – you could roll tens or hundreds of thousands in one go. This is one way wealthy individuals beef up their Roth savings (sometimes called a “backdoor Roth” on a larger scale).

• Potentially Lower Fees & Better Investments: By moving your 401(k) money into an IRA (Roth IRA in this case), you may gain access to a wider array of investment options than your employer’s 401(k) offered. Some 401(k) plans have limited menus or higher expense ratios on funds. In a self-directed IRA, you can shop around for low-cost index funds, ETFs, stocks, bonds, or nearly any investment. Lower fees and more choices can help your money grow more efficiently over time. (This benefit isn’t unique to Roth IRAs – it applies to traditional IRA rollovers too – but it’s still worth noting.)

• Strategic Tax Moves: Converting to a Roth can help with specific strategies like reducing future RMD tax impacts (by shrinking your taxable IRA balance) or allowing you to manage taxable income in retirement. For instance, some retirees do partial Roth conversions each year well before RMD age, deliberately reducing the size of their traditional IRA/401(k). When RMDs kick in, their required withdrawals (and taxes) are lower, preventing them from being pushed into higher brackets in their 70s and 80s.

• No Tax on Social Security (Indirect Benefit): Withdrawals from a Roth IRA do not count as income when determining how much of your Social Security is taxable. In contrast, withdrawals from a traditional 401(k)/IRA do count. By having more Roth funds to draw from, you could potentially keep your income below the thresholds that make Social Security benefits taxable, effectively keeping more of your Social Security in your pocket.

Overall, the Roth IRA rollover offers the promise of tax-free wealth accumulation and distribution. For many, that is the ultimate prize – especially if you have a long time for the money to compound. But nothing in finance is a free lunch, and here the “cost of entry” is paying taxes up front. So let’s examine that cost in detail.

Tax Implications 💸: What You Need to Know Before Converting

Converting a 401(k) to a Roth IRA can come with a hefty tax bill in the year of the rollover. It’s crucial to understand how this works so you can plan and avoid unpleasant surprises.

Federal Tax Hit: Paying Uncle Sam Now

When you roll over a traditional 401(k) to a Roth IRA, the pre-tax dollars in your 401(k) become taxable income in the year you convert. The IRS treats it as if you withdrew the money (though you are moving it directly into a Roth). Here’s what to consider:

• Ordinary Income Tax: The amount converted is added to your gross income for that year. For example, if you convert $100,000, that $100k is on top of your salary, bonuses, etc., and will be taxed at your marginal income tax rate. This could easily jump you into a higher tax bracket, meaning some of the conversion could be taxed at higher rates than your normal income.

• Plan for the Tax Bill: You generally want to pay the conversion taxes using cash from outside the 401(k), not from the retirement funds themselves. If you withhold taxes out of the 401(k) distribution (instead of paying separately), that withheld amount won’t reach the Roth IRA – it’s as if you took part of the money out, which defeats the purpose and could trigger penalties if you’re under 59½. So, if you owe, say, $22,000 in federal tax on a $100k conversion, ideally you’d pay that from savings or by adjusting your tax withholding/estimated payments.

• No 10% Penalty (If Done Right): The good news is that converting to a Roth IRA is not subject to the 10% early withdrawal penalty, as long as you do a direct rollover. The transfer to Roth is considered a qualified rollover. However, if you were to take possession of the money (e.g. have the check made out to you) and you don’t reinvest the full amount into a Roth IRA within 60 days, then any portion not rolled over would count as a distribution – subject to tax and a 10% penalty if you’re under 59½. Avoid this by doing a direct transfer or being very careful with the 60-day rollover rules.

• Partial Conversions are OK: You don’t have to convert your entire 401(k) balance in one go. You can do a partial rollover of, say, $20,000 this year, another $20,000 next year, etc. Spreading conversions over multiple years can help manage your tax brackets – keeping your income in a reasonable range each year rather than one massive spike. This is a common strategy to “fill up” the lower tax brackets gradually.

• Beware of Side-Effects on Other Taxes/Credits: A big income boost from a conversion can have ripple effects:

  • It could make Social Security benefits taxable (if you’re already drawing Social Security, more income means more of your benefits become taxable, up to 85% of them).
  • It might increase your Medicare premiums. High-income retirees (e.g., income above ~$200k for a married couple) pay IRMAA surcharges for Medicare Part B and D. A large conversion can push you into that higher-income territory for the following year.
  • If you’re under 65 and using an Affordable Care Act health insurance plan, a higher income could reduce or eliminate your subsidy for that year.
  • It could phase out tax credits or deductions. For example, a big conversion might reduce your eligibility for a child tax credit or make some of your itemized deductions phase out due to a higher AGI.
  • If you have significant investment income, pushing your AGI higher might subject more of it to the 3.8% Net Investment Income Tax.

• No Income Limit to Convert: Unlike Roth IRA contributions, there’s no income ceiling preventing you from doing a conversion. Even if you earn a million dollars a year, you can convert. (Just remember that the conversion amount itself adds to your income – a bit of a circular consideration!)

In short, a Roth rollover can potentially add a big chunk of taxable income to the year you do it. Smart planning (and possibly consulting a tax advisor) is essential to decide how much to convert and when.

State Tax Considerations: Your Location Matters

Don’t forget state taxes! If you live in a state with income tax, it will likely tax your Roth conversion just like the feds do:

• State Income Tax: The converted amount usually counts as income for state tax purposes as well. So, a 5% state tax means another $5,000 per $100k converted, on top of federal taxes. High-tax states (like California, New York, New Jersey, etc.) can add a significant cost to a conversion – sometimes 8-13% more.

• Strategies for State Taxes: If you’re planning to move to a different state soon, consider the timing. For example, if you currently live in a high-tax state but will retire in Florida or Texas (no state income tax), it could be wise to wait until you’re a resident of the no-tax state to do Roth conversions. Conversely, if you’re in a no-income-tax state now but might move later to a state that does tax retirement income, converting while you have the no-tax advantage could make sense.

• States with Retirement Income Breaks: Some states don’t tax retirement plan distributions (or offer exclusions) under certain conditions. For instance, Pennsylvania and Illinois generally do not tax 401(k)/IRA withdrawals for retirees. If you are in such a state and of retirement age, a conversion might not incur state tax at all. (Rules vary, so verify what your state does. Many states provide breaks only after you reach a certain age or for certain types of retirement income.)

• Local Taxes: A few localities (like some cities) have income taxes too – they would also get a slice of the pie if applicable, so factor that in if it applies to you.

Important: Tax laws (both federal and state) can change. For example, the rules for Roth conversions have evolved (recharacterizations used to be allowed before 2018, but not anymore – once you convert now, it’s permanent). Always use the latest tax rules when calculating the impact. If doing a large conversion, consider consulting a tax professional to understand the full tax bite including federal, state, and any knock-on effects.

Finally, note that if your 401(k) contains any after-tax contributions (money you contributed beyond the standard pre-tax limit), you can allocate those after-tax dollars directly to a Roth IRA without paying tax on them again. Meanwhile, the pre-tax portion can go to the Roth (taxable) or be split off to a traditional IRA (no tax on that part now). This is an advanced move (enabled by IRS Notice 2014-54) to avoid double taxation if you have both pre-tax and post-tax funds in your 401k. Essentially, don’t pay tax twice on money that was already taxed going in!

Now that we’ve covered the juicy benefits and the tax costs of a Roth rollover, let’s lay out the pros and cons side by side for a clear overview.

Pros and Cons of Rolling Over to a Roth IRA 📊

To help summarize, here’s a side-by-side look at the key advantages and disadvantages of rolling your 401(k) into a Roth IRA:

Example Scenarios: When a Roth Rollover Makes Sense (and When It Doesn’t)

Sometimes it’s easier to decide by looking at real-life examples. Consider two hypothetical investors:

These scenarios illustrate a general rule of thumb:

• A Roth rollover tends to make sense if you can pay the tax now at a lower rate than you’d pay later, and if you have a long runway for tax-free growth.
• It tends not to make sense if you’re in a high tax bracket now but will be in a much lower one later, or if you need the money in the near term.

Everyone’s situation is unique. Factors like age, time horizon, current vs. future income, and ability to pay the tax from outside funds all come into play.

Critical Mistakes to Avoid ⚠️

Even savvy investors can slip up when doing a Roth conversion. Avoid these common mistakes to ensure your 401(k) rollover goes smoothly:

• Converting more than you can afford to pay taxes on: It’s tempting to convert a huge balance to Roth all at once, but that can lead to an astronomical tax bill. Don’t bite off more than you can chew. Calculate the tax cost and make sure you have the cash on hand before you convert. It’s often wiser to convert in chunks over several years rather than one big push.

• Not planning for bracket creep and extra taxes: Converting a large amount in one year can push you into higher tax brackets and trigger hidden costs (like losing deductions or credits, or higher Medicare premiums). For example, converting $100k on top of a $100k salary might push part of your income from the 24% bracket up into the 32% bracket. Plan conversion amounts that keep you in a comfortable tax bracket if possible. Also consider splitting across calendar years (e.g., half in December, half in January) to spread the impact.

• Using 401(k) funds to pay the tax: If you withdraw or withhold part of the 401(k) money to pay taxes, that portion does not get into the Roth IRA. Not only do you lose that chunk from your retirement account, but if you’re under 59½, that withheld amount counts as an early distribution – meaning a 10% penalty on top of taxes. Always try to pay taxes from separate savings. This way, 100% of your 401(k) withdrawal lands in the Roth to grow.

• Ignoring the 5-Year Rule: Remember that each Roth conversion has its own five-year clock. If you’re under 59½, you generally can’t take out the converted principal from the Roth IRA for five years without a 10% penalty (unless an exception applies). This is separate from the rule that you must wait 5 years (and be over 59½) for earnings to be tax-free – here we’re talking about avoiding the early withdrawal penalty on the amount you converted. In short: don’t convert money you might need within the next 5 years if you’re younger than 59½. Plan to leave it in the Roth until you’re past 59½ (or at least five years have passed since the conversion).

• Failing to take RMDs first (if applicable): If you’re already at the age for required minimum distributions and have an old 401(k) (for example, age 73+ in 2024), you cannot convert your RMD amount to Roth. You must withdraw that year’s RMD to taxable income first (pay tax on it), then you can convert any additional funds to a Roth IRA. Converting an RMD is not allowed and is a frequent mistake. Make sure any RMD due is handled separately before doing a rollover of the rest.

• Not separating after-tax contributions: If your 401(k) includes after-tax contributions (not Roth, but voluntary after-tax in a traditional 401k), don’t accidentally pay tax on that money again. You can direct those after-tax dollars to a Roth IRA tax-free. Only the pre-tax portion of your 401k should cause a tax bill upon conversion. Work with your plan administrator to properly allocate funds during the rollover. (This is especially relevant for folks doing a “mega backdoor Roth” – ensure after-tax contributions go to Roth, and only pre-tax funds go to a traditional IRA or get converted with taxes.)

• Overlooking the Rule of 55 or other 401(k) perks: If you separate from your job at age 55 or older, your 401(k) allows penalty-free withdrawals immediately (the “Rule of 55”). If you roll that money into an IRA (Roth or traditional), you lose that early-access benefit (IRAs have no such rule, just the standard 59½ age). So if you might need to tap funds between ages 55 and 59½, be cautious about moving everything out of the 401k. You might leave some in the 401(k) to use that penalty-free window and convert the rest. Also, some 401(k)s offer loan provisions or special investment options (like stable value funds) that IRAs don’t; consider if you’ll miss those features before rolling over.

• Neglecting creditor protection differences: 401(k) plans have very strong protection from creditors and lawsuits under federal law (ERISA). IRAs also have some protection, but it’s under different rules (federal bankruptcy law and state laws). In bankruptcy, up to about $1–1.5 million of IRA assets are protected (rollovers from a 401k are usually fully protected), but outside of bankruptcy, state laws vary on how safe your IRA is from creditors. If asset protection is a big concern for you, be aware that moving money into an IRA might slightly change those protections. Most people won’t find this to outweigh the other factors, but it’s worth noting as part of the decision.

• Assuming you can undo the conversion if it doesn’t work out: Prior to 2018, you could “recharacterize” (undo) a Roth conversion by the tax filing deadline of the next year. That is no longer allowed. Once you convert your 401(k) to a Roth IRA, it’s permanent. So be sure about your decision and strategy. There’s no mulligan if the tax bill is bigger than expected or if the market dips after you convert (meaning you paid tax on value that has since declined). One way to mitigate regret is to convert in smaller increments (instead of all at once), which gives you more flexibility.

• Not keeping documentation and following through: Always do a direct rollover if possible. If a check is mailed to you, ensure it’s made out to the new custodian for the benefit of (FBO) your Roth IRA, and get it deposited right away. Keep records of the rollover (confirmation letters, statements). Come tax time, report the rollover properly – you’ll receive a Form 1099-R for the distribution and you may need to file Form 8606 to report the conversion. If you follow the steps correctly, the paperwork is routine. But if you miss the 60-day window on an indirect rollover, or attempt more than one 60-day IRA rollover in a year (the IRS only allows one per 12 months across all your IRAs per a Tax Court ruling), you could face unexpected taxes. The bottom line: stick to the rules and double-check the process to avoid costly mistakes.

How to Execute a 401(k) to Roth IRA Rollover (Step-by-Step)

If you decide that a Roth conversion is right for you, follow these steps to perform the rollover smoothly:

1. Open a Roth IRA account (if you don’t already have one). Choose a reputable brokerage or financial institution – this is where your 401(k) money will land. (If you already have a Roth IRA, you can use your existing account for the rollover.)

2. Check eligibility and plan rules: If the 401(k) is from a former employer, you’re free to roll it over at any time. If you’re still with the employer, confirm that the plan allows in-service rollovers or distributions. Many plans let those age 59½+ do rollovers while still employed; some may not allow it until you leave the company. Know your plan’s rules.

3. Request a direct rollover: Contact your 401(k) plan administrator and tell them you want to roll over funds to a Roth IRA. They’ll provide the necessary forms or online process. Opt for a direct rollover (trustee-to-trustee) so the money goes directly to your Roth IRA provider. Typically, the plan can send the funds via electronic transfer or mail a check. If it’s a check, it will usually be made out to something like “[Brokerage Name] FBO [Your Name] Roth IRA”. This means it’s for the benefit of your Roth IRA – you then forward or hand it to your brokerage to deposit into your account.

4. Specify the amount and sources: Decide if you’re rolling over the entire 401(k) or just a portion. You can often choose specific dollar amounts or assets to roll. The 401(k) plan will likely liquidate your investments into cash for the transfer. If you have both a traditional and Roth portion in your 401(k), you’ll need to specify what to do with each (e.g., roll the traditional portion into the Roth IRA – taxable conversion – and the Roth 401(k) portion into the Roth IRA as well – no tax on that part).

5. Handle tax withholding (if any): When doing a direct rollover to a Roth, you may be asked if you want taxes withheld. Usually, elect no withholding for a direct rollover. You want the full amount to go into the Roth IRA, and you will handle the taxes yourself. If the plan by default withholds 20% for taxes (which is common when rolling 401k to a traditional IRA but not typical for direct to Roth if properly coded), ensure you clarify that this is a Roth conversion rollover and you do not want withholding. If they do withhold, you’ll need to replace that withheld amount with your own money to still get the full intended amount into the Roth – otherwise you’ll have effectively taken a partial cash distribution.

6. Deposit the funds into your Roth IRA: If the transfer is electronic, it should arrive in your Roth IRA account automatically. If you receive a check, make sure to send it to your Roth IRA custodian right away (depending on their instructions, you might mail it or drop it off). Do not deposit a 401k check in your personal bank account. The check should be made out to the IRA custodian, not you, to avoid being treated as a distribution. Act promptly to avoid any deadlines; although with a direct rollover check made out to the custodian the 60-day rule isn’t technically triggered, it’s good practice to complete the rollover quickly.

7. Pay the conversion taxes: The 401(k) plan will issue a Form 1099-R to you for the distribution. Because it’s going into a Roth IRA, the 1099-R will show the amount as taxable (assuming it was pre-tax money). When you file your taxes, you’ll report the rollover as a Roth conversion. All the pre-tax portion will count as income. Be prepared to pay the additional income tax when you file your return (or make estimated tax payments beforehand to avoid any underpayment penalty if the amount is large). Tip: if you’re doing a very large conversion, consider adjusting your W-4 withholding at your job or sending in quarterly tax payments to cover the tax bill.

8. Update your investment allocations: Once the money is in your Roth IRA (often it will arrive as cash), invest it according to your retirement strategy. Being in a Roth IRA opens up many investment choices, but you’ll want to allocate the funds in line with your goals and risk tolerance. Also, take a moment to name or update beneficiaries on the Roth IRA, especially if this is a new account. This ensures your Roth IRA goes to your intended heirs without hassle.

9. Keep records: Save all paperwork related to the rollover – confirmation statements from your 401(k) plan, any correspondence, and statements from the Roth IRA showing the incoming rollover. At tax time, double-check that the rollover was reported correctly (you may need to fill out Form 8606 to indicate a Roth conversion). Having records will help if there’s ever any question from the IRS about whether your distribution was rolled over properly.

By following these steps carefully, you can ensure the rollover is done correctly and avoid unnecessary taxes or penalties. Once complete, you’re set to enjoy the benefits of your Roth IRA going forward!

FAQ: Rolling Over a 401(k) to a Roth IRA

Q: Can I roll over my 401(k) to a Roth IRA while I’m still employed at that company?
A: Only if your plan permits an in-service rollover (often after age 59½). Otherwise, you must leave your employer or wait until you’re eligible for a distribution.

Q: Is there a limit to how much I can roll over from a 401(k) to a Roth IRA?
A: No dollar limit on conversions. You can convert as much as you want (even an entire 401k balance), but be prepared for the tax impact of converting a large amount.

Q: Do I have to pay the 10% early withdrawal penalty on a 401(k)-to-Roth rollover?
A: No. A direct rollover to a Roth IRA is not subject to the 10% early withdrawal penalty, regardless of your age. Taxes are owed, but no penalty as long as it’s a proper rollover.

Q: What if I can’t afford the tax on a full conversion?
A: You can do a partial conversion. Convert an amount that you can afford to pay taxes on this year. You can spread additional conversions over multiple years.

Q: How does a Roth 401(k) rollover differ from a traditional 401(k) rollover?
A: A Roth 401(k) can only go into a Roth IRA and doesn’t trigger taxes (the money is already after-tax). A traditional 401(k) to Roth IRA rollover is a taxable conversion on the pre-tax amount.

Q: Will a Roth conversion save me money on taxes overall?
A: It depends. If your tax rate now is lower than or similar to your future rate, likely yes. If it’s higher now but will be much lower later, you might pay extra.

Q: How long does a 401(k) to Roth IRA rollover take?
A: The process is typically completed in a few weeks or less. A direct transfer can be as quick as a few business days once paperwork is processed. Check with your providers.

Q: Do I need to withhold taxes during the rollover?
A: It’s usually better not to withhold taxes on a direct rollover. Send the full amount to the Roth IRA, then separately pay any taxes due from other funds.

Q: What is the five-year rule on converted funds?
A: If you’re under 59½, each conversion must stay in the Roth for 5 years (or until you turn 59½, whichever is later) before you can withdraw that converted amount penalty-free.

Q: Can I undo a Roth conversion if I change my mind?
A: No. Since 2018, Roth conversions are irreversible. There is no way to recharacterize (undo) a conversion back to a traditional IRA/401k, so plan carefully before converting.