Rolling Your 401(k) Into a Roth IRA: Ripping Off the Tax Bandage Now So Retirement-You Doesn't Have To (No Take-Backs)

Key facts: Pre-tax amounts rolled into a Roth IRA are normally included in gross income on the return for the year of the conversion (IRS Publication 590-A). · A plan distribution paid to you instead of directly to the Roth IRA is subject to mandatory 20% withholding, even if you plan to roll it over (IRS). · Conversions and rollovers to a Roth IRA made in 2018 or later cannot be recharacterized back to a traditional IRA (IRS Publication 590-A).

Let's face it: a Roth conversion is ripping off a bandage, except the bandage is made of money and the IRS is the one yanking. It stings now, on purpose, so that later (if you follow the rules) the withdrawals don't sting at all. So let's talk about rolling a 401(k) into a Roth IRA: whether you can, what it costs, and where the traps hide. (Spoiler: the traps were built by the IRS.)

Can You Even Do This? (Yes, the IRS Left the Door Unlocked)

Yes. According to IRS Publication 590-A, you can roll all or part of an eligible rollover distribution from a 401(k), a 403(b), or a governmental 457 plan into a Roth IRA. The plot twist sits in the next sentence: "Any amount rolled over is subject to the same rules for converting a traditional IRA into a Roth IRA." It's a conversion wearing a rollover's name tag.

First you have to get the money out. The IRS says you have to meet the plan's conditions for a distribution, such as termination of employment. (Your plan is the bouncer. It decides when you get to leave the party.)

The Sting (Pre-Tax Money Pays Full Price)

Here's the bill. Pub 590-A says you include in gross income the amounts you would have had to include if you hadn't converted them, normally on your return for the year of the conversion. So a rollover done in 2026 lands on your 2026 return. (Uncle Sam does not run a tab. Uncle Sam has never run a tab.)

The same publication warns that you may have to increase your withholding or make estimated tax payments. That conversion income also raises your AGI for other AGI-based phaseouts and taxable income, such as the deduction for medical and dental expenses. It's subtracted only when you figure modified AGI for Roth IRA purposes. How much it stings depends on your marginal bracket, which we break down in our tax brackets explainer.

Got after-tax contributions in the plan? The IRS says any distribution generally includes a pro rata share of pretax and after-tax amounts. Its example is a $100,000 balance made up of $80,000 pretax and $20,000 after-tax. Under Notice 2014-54, distributions sent to multiple destinations at the same time count as one. That lets you send all the pretax money to a traditional IRA and all the after-tax money to a Roth IRA.

Two catches, because there are always catches:

• Earnings on after-tax contributions count as pretax. (The growth didn't get the memo.)
• No cherry-picking. You can't take only the after-tax amounts and leave the rest in the plan. A partial distribution includes some pretax money.

Direct vs. 60-Day (One Door Has a 20% Trapdoor)

With a direct rollover, the plan pays the Roth IRA trustee, and generally no tax is withheld. If the check comes to you instead, the IRS says it's subject to mandatory withholding of 20%, even if you intend to roll it over later.

The IRS's own example: Jordan, 42, gets a $10,000 eligible rollover distribution from her 401(k), and her employer withholds $2,000. If she rolls over only $8,000, she reports $2,000 as taxable income. She also owes the 10% additional tax on early distributions on that $2,000 unless an exception applies. To roll over the full $10,000, she has to find $2,000 from other sources. If the money goes into a Roth IRA, the converted part still follows the conversion income rules above.

Some small mercies: the IRS may waive the 60-day deadline in certain situations beyond your control. The one-per-year IRA rollover limit doesn't apply to plan-to-IRA rollovers or conversions. The full side-by-side comparison lives in our direct vs. indirect rollover guide.

No Take-Backs (Plot Twist: The Undo Button Was Removed in 2018)

Conversions and plan-to-Roth rollovers made in tax years beginning after December 31, 2017, cannot be recharacterized as having been made to a traditional IRA. No U-turns and no "it's not you, it's my tax bill." Once that bandage is off, you can't stick it back on.

The 5-Year Clocks (Yes, Plural, Like an Airport Wall Nobody Synced)

Publication 590-B runs two kinds of clocks:

• The qualified-distribution clock. It starts with the first tax year a contribution was made to a Roth IRA set up for you. A distribution is qualified after that 5-year period and if it's made at 59½ or later, because of disability, to a beneficiary after death, or for a first home (up to $10,000 lifetime).
• The conversion clocks. If you take a distribution within 5 years of a conversion or rollover, you may owe the 10% additional tax on early distributions. "A separate 5-year period applies to each conversion and rollover." Each clock starts on the first day of the tax year you convert, which is January 1 for most of us. In the IRS example, a February 25, 2025 conversion starts its clock January 1, 2025.

The IRS notes these periods aren't necessarily the same. (Two clocks, one account, different schedules. Like co-parenting with a calendar app that hates you.)

The Side Door: In-Plan Roth Rollovers (If Your Plan Built One)

Some plans skip the IRA entirely. An in-plan Roth rollover moves money from a non-Roth account to your designated Roth account in the same plan. 401(k), 403(b), and governmental 457(b) plans with designated Roth accounts may offer it. "May" is doing heavy lifting there, so check your plan documents.

The Fine Print: Not every dollar gets to make the trip. Amounts that must be distributed during a particular year under the required distribution rules aren't eligible for rollover treatment, and the IRS also lists loans treated as distributions, hardship distributions, and series of substantially equal payments among the things you can't roll over.

Why Anyone Volunteers for the Sting (The Tax-Free Part)

You can't deduct Roth IRA contributions, but "if you satisfy the requirements, qualified distributions are tax-free." The IRS also says, "You can leave amounts in your Roth IRA as long as you live." The trade-off is simple to state: pay tax on the pre-tax money now, or keep it pre-tax and deal with the tax later. Which side wins depends on your tax rate now versus later, and nobody, not even the IRS, has a crystal ball for that. (If they did, it would come with a form.)

The Bottom Line (One Quick Pull)

Rolling a 401(k) into a Roth IRA is allowed. It's taxed like a conversion in the year it happens, and it can't be undone. A direct rollover avoids the 20% withholding scramble. Every conversion starts its own 5-year clock, and RMD amounts can't ride along.

Your one move: ask your plan administrator for the rollover notice, find out whether your plan offers in-plan Roth rollovers, and run the numbers with a tax professional before you pull anything.

Now go forth and peel responsibly. The IRS has never once accepted "I'll pay you back in retirement," and believe us, people have asked.

This is general education, not tax, legal or investment advice. We explain the bandage; we don't pull it for you, and we definitely don't pay your tax bill. Talk to a qualified pro about your situation.

Sources:

• IRS: Rollovers of retirement plan and IRA distributions
• IRS Publication 590-A
• IRS Publication 590-B
• IRS: Roth IRAs
• IRS: Rollovers of after-tax contributions in retirement plans
• IRS: Retirement plans FAQs on designated Roth accounts