Can You Roll a 401(k) Into a Roth IRA: Taxes, Rollover Types, and Traps

Yes, you can roll a 401(k) into a Roth IRA, and since 2010 there has been no income limit on who is allowed to do so.¹ The catch is tax: when the money comes out of a traditional, pre-tax 401(k), the full amount you convert counts as ordinary income in the year the rollover happens, taxed at federal rates that run from 10% to 37% depending on your total income for the year.² Rolling money from a designated Roth 401(k) is different; those dollars have already been taxed and move to a Roth IRA without new tax. Everything else in this article turns on those two facts.

Will Your 401(k) Even Let You Take the Money Out

Eligibility to convert is universal, but access to your 401(k) balance is not. The plan itself has to permit a distribution before anything can move. Most plans release funds after you leave the employer through resignation, retirement, or layoff, or once you reach age 59½ while still working there.³ Termination of the employer’s plan can also trigger distribution rights. If you are under 59½ and still working for the sponsoring employer, expect the plan to keep your deferrals locked in. Your summary plan description or benefits department will tell you where you stand.

There is no dollar limit on how much you can convert, and no requirement to convert the whole balance at once. Federal rules let you roll over all or part of an eligible distribution.⁴ Converting in chunks across multiple years is a common way to spread the tax hit and keep any single year from spiking into a higher bracket.

How Much Tax You Will Owe

Pre-tax 401(k) money moving into a Roth IRA is treated by the IRS as a taxable distribution, added to your ordinary gross income for the calendar year the conversion is completed.⁵ You are prepaying tax now in exchange for tax-free qualified withdrawals later.

A large conversion can push you into a higher marginal bracket. For 2026, single-filer thresholds are:²

10% up to $12,400 ($24,800 married filing jointly)
12% over $12,400 ($24,800 jointly)
22% over $50,400 ($100,800 jointly)
24% over $105,700 ($211,400 jointly)
32% over $201,775 ($403,550 jointly)
35% over $256,225 ($512,450 jointly)
37% over $640,600 ($768,700 jointly)

Brackets are marginal, so the higher rate applies only to income within that bracket, not to the whole balance. If your salary is $90,000 and you convert $50,000, each layer of that combined income is taxed at its own rate as it crosses each threshold.

If your contributions went into a designated Roth 401(k) rather than a traditional pre-tax account, those dollars and their earnings roll into a Roth IRA without additional income tax, since tax was already paid going in.¹ Nontaxable amounts from a designated Roth account must move trustee to trustee rather than passing through your hands.

Direct Rollover vs. Indirect Rollover

The mechanics of the transfer matter almost as much as the tax math, because one method carries a hard deadline and mandatory withholding.

Direct Rollover

In a direct rollover, your 401(k) custodian sends the funds straight to your Roth IRA provider. Nothing is withheld, and the money never touches your bank account.⁶ You still owe income tax on the converted amount when you file, but you decide when and how to pay it. Most direct rollovers take two to four weeks.

Indirect Rollover

In an indirect rollover, the plan sends you a check and is required to withhold 20% of the taxable amount for federal taxes.⁶ You then have 60 days from receipt to deposit the full original distribution, including the withheld 20%, into the Roth IRA.⁴ That means fronting the withheld amount from your own savings; you get it back as a credit at tax time. Miss the 60-day window and the shortfall becomes a permanent distribution, fully taxable, plus the 10% early withdrawal penalty if you are under 59½.⁷

The IRS will sometimes waive the 60-day deadline when the delay was outside your control, such as a financial institution error, a lost check, serious illness, a death in the family, disaster damage to your home, incarceration, or postal error. Under Revenue Procedure 2020-46 you can self-certify if you deposit the funds as soon as the obstacle clears, generally within 30 days, and the IRS has not previously denied a waiver for that distribution.⁸ A direct rollover avoids all of this.

The Five-Year Rules

Roth IRA withdrawals are tax-free only when they are “qualified.” That means two things at once: you are at least 59½ (or meet an exception such as disability or death), and at least five tax years have passed since your first contribution or conversion to any Roth IRA.⁹ Withdraw earnings before both conditions are met and those earnings are taxable, with the 10% early withdrawal penalty on top if you are under 59½.

A separate five-year clock runs on each conversion for anyone under 59½. It begins January 1 of the tax year the conversion was completed. Pull converted dollars out inside that window while still under 59½ and the 10% additional tax can apply to the taxable portion of the conversion.¹⁰ Once you turn 59½, this per-conversion clock stops mattering; only the earnings rule remains.

One useful wrinkle: the five-year clock for qualified distributions starts with the first taxable year you made a contribution to any Roth IRA, and it covers all your Roth accounts. Opening a new Roth does not restart it.⁹

Required Minimum Distributions

If you are 73 or older (or 75 once that threshold takes effect in 2033), your 401(k) requires annual minimum distributions, and RMDs are explicitly excluded from eligible rollover amounts.⁴ Take the full RMD for the year first; then any additional amount can be converted.

Getting out from under RMDs is often the whole point. Roth IRAs have no required minimum distributions during the owner’s lifetime, so the balance can keep compounding tax-free indefinitely instead of being drawn down on the government’s schedule.¹¹

Traps Worth Knowing Before You Move the Money

Company Stock

If your 401(k) holds highly appreciated employer stock, rolling those shares into any IRA can be an expensive mistake. A strategy called net unrealized appreciation lets you distribute the stock to a regular taxable brokerage account, pay ordinary income tax only on the original cost basis, and then pay long-term capital gains rates on the appreciation when you sell. Move those same shares into a Roth or traditional IRA and the NUA option is gone for good; all future withdrawals come out at ordinary income rates, up to 37% in 2026 versus a top long-term capital gains rate of 20%.² Run the comparison before you roll appreciated employer stock anywhere.

After-Tax Money Inside the 401(k)

Some plans allow after-tax contributions that are separate from both pre-tax deferrals and designated Roth contributions. Any single distribution has to include a proportional share of pre-tax and after-tax dollars; you cannot pick only the after-tax slice. But if you take a full distribution and direct it to two destinations at once, the IRS treats those simultaneous transfers as a single distribution for the split. You can send the pre-tax portion to a traditional IRA and the after-tax portion to a Roth IRA in one coordinated move, paying tax only on the pre-tax side.¹²

Rolling directly from a 401(k) to a Roth IRA also sidesteps the pro-rata aggregation rule that applies when you convert from an existing traditional IRA. That aggregation, which forces the IRS to look at all your traditional, SEP, and SIMPLE IRA balances together, is a common source of surprise tax bills when people convert from an IRA instead of the plan.

State Income Tax

Most states with an income tax follow the federal treatment and add the converted amount to state taxable income. Texas, Florida, Nevada, and Wyoming, along with other no-income-tax states, add nothing. A few states treat conversions differently; Pennsylvania, for example, generally does not tax IRA conversions. Check your state’s rule before signing the paperwork.

How to Actually Do It

Open the receiving Roth IRA first if you don’t already have one. Then gather what your 401(k) plan administrator will need:

Full legal name of the receiving institution
Your Roth IRA account number
Mailing or electronic delivery address for the transfer

The plan will send rollover paperwork. Designate the payee for a direct rollover in the form “[Financial Institution Name] FBO [Your Name] Roth IRA.” FBO stands for “for the benefit of,” and it signals the check is not personal income to you. Complete every withholding election so nothing is withheld by mistake. Identify whether the funds are pre-tax, after-tax, or from a designated Roth account, since the receiving institution reports the deposit accordingly. Some plans require a medallion signature guarantee or notarized form, and some use a third-party administrator with its own plan identification number, which usually appears on your quarterly statement.

Once the funds land, confirm that the deposit matches the distribution amount, and set up beneficiary designations on the new Roth IRA. Beneficiary elections on the old 401(k) do not carry over.

Tax Forms

Two forms document the move. Your 401(k) custodian issues Form 1099-R showing the distribution amount and a distribution code in box 7; a direct rollover of pre-tax money to a Roth IRA typically uses Code G, with the full amount in box 1.¹³ The Roth IRA custodian issues Form 5498, reporting the incoming amount in box 2 for a direct rollover or box 3 for a conversion from a traditional IRA.¹⁴ The IRS matches the two. Missing the taxable income on your return, or a mismatch between the forms, can bring accuracy-related penalties and interest.¹⁵

A properly reported direct rollover is not treated as an early distribution, so the 10% penalty that normally applies before age 59½ does not attach to the conversion itself.¹⁶ The five-year rules above still control what happens if you pull the money back out too soon.

1
Internal Revenue Service. Rollover Chart
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Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
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Internal Revenue Service. When Can a Retirement Plan Distribute Benefits
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Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
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Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust
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Internal Revenue Service. 401(k) Resource Guide – Plan Participants – General Distribution Rules
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Office of the Law Revision Counsel. 26 USC 72 – Annuities, Certain Proceeds of Endowment and Life Insurance Contracts
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Internal Revenue Service. Retirement Plans FAQs Relating to Waivers of the 60-Day Rollover Requirement
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Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs
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Internal Revenue Service. Topic No. 557, Additional Tax on Early Distributions From Traditional and Roth IRAs
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Internal Revenue Service. RMD Comparison Chart (IRAs vs. Defined Contribution Plans)
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Internal Revenue Service. Rollovers of After-Tax Contributions in Retirement Plans
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Internal Revenue Service. Form 5498 IRA Contribution Information
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Internal Revenue Service. Accuracy-Related Penalty
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Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions