Can You Roll Over Your 401k to a Roth IRA: Taxes, Pro-Rata, RMDs

Rolling over a 401(k) to a Roth IRA is allowed for anyone whose plan permits a distribution, with no income limit and no cap on the amount converted. The trade-off is tax: every pre-tax dollar you move counts as ordinary income in the year of the conversion, and federal brackets for 2026 run from 10% to 37%.¹ A large conversion done in a single year can push you into a bracket you didn’t plan on.

When You’re Allowed To Roll Over

The 401(k) plan has to release the money first. The usual triggers are leaving the employer, plan termination, disability, or reaching age 59½.² Once you’ve left the job, you can generally roll the whole balance whenever you want.

Still working there? Some plans offer an in-service distribution after 59½, but it’s optional for the employer to allow. Your summary plan description or plan administrator will tell you whether yours does. Hardship distributions exist while employed but come with restrictions and generally can’t be rolled into a Roth IRA.

There’s no income restriction and no dollar cap on how much you can convert in one year.³ Conversions and Roth contributions are separate transactions under the tax code, so earning too much to contribute directly to a Roth IRA doesn’t block you from converting into one.

How the Tax Bill Works

Traditional 401(k) contributions went in before tax, so the IRS has never collected income tax on that money. Moving it to a Roth IRA shifts it from a pre-tax account to an after-tax account, and the converted amount is added to your gross income for the year at ordinary income rates, not capital gains rates.⁴

Bracket math matters. Convert $80,000 while earning $60,000, and the IRS sees $140,000 in gross income. For a single filer in 2026, income above $105,700 is taxed at 24% instead of 22%, so part of that conversion crosses into the higher bracket.¹ People who look only at their salary when estimating the cost miss this.

One thing that does not happen: the 10% early withdrawal penalty. Even if you’re under 59½, the statute exempts qualified rollover contributions from that penalty on the conversion itself.⁴ You owe income tax, not the extra 10%.

Direct vs. Indirect Rollover

How the money moves determines whether 20% of your balance gets held back up front.

In a direct rollover, the 401(k) plan sends the funds straight to your Roth IRA custodian. The check is made payable to the receiving institution for your benefit, not to you personally. Nothing is withheld, and you never touch the money.³ This is the option most people should choose.

In an indirect rollover, the plan cuts a check to you. At that moment, the plan administrator is legally required to withhold 20% for federal income tax.² You then have 60 days to deposit the full original amount into the Roth IRA. The catch is that you received only 80%. To complete the rollover in full, you have to cover that missing 20% from other savings.³

Deposit only the 80% you received, and the IRS treats the missing 20% as a taxable distribution. If you’re under 59½, that 20% also gets hit with the 10% early withdrawal penalty.⁵ Miss the 60-day deadline and the whole distribution is taxable. Most avoidable mistakes happen here.

Spreading Conversions Across Years

You don’t have to convert everything at once. The IRS lets you roll over all or part of any eligible distribution.³ Convert a slice each year, sized to fill up your current bracket without spilling into the next one.

A single filer earning $85,000 in 2026 has about $20,700 of room before hitting the 24% bracket at $105,700.¹ Converting roughly that much keeps everything taxed at 22%. Repeat annually and a large balance moves over several years without ever jumping a bracket. This works especially well in low-income years: early retirement before Social Security starts, a career gap, a sabbatical.

The Five-Year Clock on Converted Amounts

Every conversion starts its own five-year clock. Withdraw converted amounts before that clock runs out while you’re under 59½, and the IRS applies the 10% early withdrawal penalty to the taxable portion of the conversion. Income tax was already paid at conversion; the penalty is the extra cost for pulling the money out too soon.

The clock begins on January 1 of the tax year of the conversion. A conversion done in November 2026 starts its clock on January 1, 2026, and the five years end on January 1, 2031. A second conversion in 2028 has its own separate clock running until January 1, 2033.

Two things neutralize the penalty. Once you reach 59½, the five-year recapture rule no longer applies to converted amounts. Certain exceptions such as disability or death also eliminate it. If you’re already over 59½ at the time of conversion, this rule isn’t a concern.

The Pro-Rata Rule When After-Tax Money Is Mixed In

Some 401(k) plans allow after-tax (non-Roth) contributions on top of the standard pre-tax deferrals. If your account holds a mix, you can’t cherry-pick the after-tax dollars for the Roth and leave everything else. Any partial distribution must include a proportional share of both pre-tax and after-tax amounts.⁶

There’s a workaround. Take a full distribution of the account and split the rollover: pre-tax money into a traditional IRA, after-tax contributions into a Roth IRA. Under IRS guidance, simultaneous distributions to multiple destinations are treated as a single distribution for allocating pre-tax and after-tax amounts, which makes the split possible.⁶ The after-tax contributions going into the Roth aren’t taxed again. Any earnings on those after-tax contributions, though, are pre-tax money and get taxed as ordinary income when converted.

Costs Beyond the Federal Bill

Medicare Premiums

Near or in retirement, a large conversion can raise Medicare premiums. Part B and Part D premiums include an Income-Related Monthly Adjustment Amount (IRMAA) that kicks in above certain income thresholds. Because a conversion adds to gross income, it can push you above those thresholds for two years after the conversion, since Medicare uses tax returns from two years prior.

For 2026, the IRMAA surcharge starts for single filers with income above $109,000 and joint filers above $218,000, rising in tiers as income climbs.⁷ A $50,000 conversion that lifts a retiree from $100,000 to $150,000 in income can mean hundreds of dollars in additional monthly premiums two years later. Once the money is in a Roth, qualified withdrawals don’t count as income, so they won’t trigger IRMAA in future years or raise the taxable share of Social Security. Converting in lower-income years before Medicare enrollment can avoid the IRMAA problem entirely.

State Income Tax

Most states with an income tax treat conversions the same way the IRS does: the amount converted is taxable in the year of conversion. State rates run from zero in states with no income tax to above 13% in the highest-tax states. Some states offer partial exemptions for retirement income based on age, but those don’t always cover conversion income. A combined federal and state rate above 40% is possible for high-income filers in high-tax states, so check your state’s treatment before a large conversion.

When You Might Not Want To Convert: Employer Stock

If your 401(k) holds appreciated employer stock, think carefully. A tax provision called Net Unrealized Appreciation (NUA) lets you take a lump-sum distribution of employer stock into a taxable brokerage account and pay ordinary income tax only on the stock’s original cost basis. The appreciation is taxed later at long-term capital gains rates when you sell, which are lower than ordinary income rates for most filers.

Rolling that stock into a Roth IRA eliminates the NUA option permanently. Future withdrawals from the Roth would be tax-free as qualified distributions, but you’d have given up the chance to pay capital gains rates on the appreciation. For large blocks of highly appreciated employer stock, NUA often wins. Which approach makes sense depends on how much the stock has appreciated, your current bracket, and how long you plan to hold it.

Paperwork and Filing

Open the Roth IRA before starting the rollover if you don’t already have one. Your 401(k) plan administrator provides the distribution form; select “direct rollover” and specify the destination as a Roth IRA. Getting the account type right matters because it determines how the distribution is reported on Form 1099-R.

The 401(k) provider issues a Form 1099-R for the year of the conversion, reporting the distribution and the taxable amount. On your return, report the conversion on Form 1040 and file Form 8606, which tracks the taxable and nontaxable portions. Part II of Form 8606 handles conversions from traditional accounts to Roth IRAs.⁸ Skip Form 8606 and the IRS may treat the entire distribution as taxable, including portions that shouldn’t be. This form isn’t optional.

The Long-Term Payoff: No Required Minimum Distributions

Traditional 401(k)s and traditional IRAs force distributions starting at a certain age, generating taxable income whether you need the cash or not. Roth IRAs have no lifetime required minimum distributions for the original owner.⁹

The balance can grow tax-free for decades, you withdraw only what you need, and the remainder passes to heirs. Beneficiaries eventually face distribution requirements, but you don’t. For people who don’t need every dollar in retirement, that flexibility can justify the upfront tax cost on its own.

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
2
Internal Revenue Service. 401(k) Resource Guide – Plan Participants – General Distribution Rules
3
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
4
Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs
5
Internal Revenue Service. Retirement Plans FAQs Relating to Waivers of the 60-Day Rollover Requirement
6
Internal Revenue Service. Rollovers of After-Tax Contributions in Retirement Plans
7
Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles
8
Internal Revenue Service. Instructions for Form 8606
9
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs