How to Do a Roth In-Plan Conversion on Fidelity

A Roth in-plan conversion on Fidelity moves money from the pre-tax or after-tax side of your employer’s 401(k) into the plan’s designated Roth account, where it grows tax-free from that point forward. The transfer happens entirely inside the plan through Fidelity NetBenefits or a call to Fidelity’s Workplace Investing line, your plan document has to allow it, and you’ll owe ordinary income tax on any pre-tax dollars you convert. Because the Tax Cuts and Jobs Act eliminated recharacterization, the conversion is permanent once it posts, so the details matter.

Confirm Your Plan Allows It

Not every 401(k) offers in-plan Roth conversions. Your employer’s plan document controls whether the feature exists, which money sources are eligible, and whether active employees can convert at any age or only after reaching 59½.¹ Log in to Fidelity NetBenefits, open your 401(k), and look for the Summary Plan Description or Plan Information document. That document spells out which conversion types your plan supports.

If the SPD is unclear or you can’t locate it, call the Fidelity Workplace Investing number on your statement. A representative can confirm whether in-plan conversions are available, which sources qualify, and whether age or service restrictions apply. Some plans let you convert after-tax contributions at any time but restrict pre-tax conversions to participants who are at least 59½ or who otherwise qualify for an in-service withdrawal.

What You Can Convert

Three pools of money inside a 401(k) can potentially move to the Roth side, and each is taxed differently when it arrives.

Pre-tax deferrals: your traditional 401(k) contributions and their earnings. The entire amount is taxable upon conversion.
Vested employer contributions: matching and profit-sharing dollars. If the plan allows them to be converted, the full amount is taxable, same as pre-tax deferrals.
After-tax (non-Roth) contributions: dollars some plans let you contribute beyond the elective deferral limit. You already paid income tax on these contributions, so only the earnings on them are taxable at conversion.

The after-tax bucket is what powers the Mega Backdoor Roth. The 2026 elective deferral limit is $24,500, with an $8,000 catch-up at 50 and $11,250 for ages 60 through 63.² The IRS sets a separate, higher cap on total annual additions (your deferrals plus employer contributions plus after-tax contributions). The gap between what’s already been contributed and that total cap is the room available for after-tax contributions, which you then convert into the Roth account.

Running the Conversion in NetBenefits

Whether you can finish the conversion online or need to call depends on how your employer’s plan is configured in Fidelity’s system. Many plans now support online conversions; some still require a phone call.³

Online

Log in to NetBenefits and open your 401(k). Look for a menu option labeled “Roth In-Plan Conversion,” “Withdrawals and Rollovers,” or “Change Investments / Transfers.” The exact structure varies by plan. The conversion tool will ask you to select the source (pre-tax balance, after-tax balance, or both if allowed), enter a dollar amount, and confirm the destination is the designated Roth account. Read the summary screen before you submit.

The conversion typically processes by liquidating holdings in the source account to cash and reinvesting on the Roth side.³ Depending on plan rules, the reinvestment may mirror your existing allocation or default to a money market fund. Check the Roth account afterward and reallocate if needed.

By Phone

If the portal doesn’t show a conversion option, call the Fidelity Workplace Investing number on your statement. Tell the representative you want to do an in-plan Roth conversion, specify the source and dollar amount, and let them process the transfer. Keep notes from the call, including a confirmation number.

Automating After-Tax Sweeps

If your plan allows after-tax contributions and in-plan conversions, ask whether automatic conversions are available. When they are, each new after-tax contribution is swept into the designated Roth account on a daily or near-daily cadence. That’s the point of the Mega Backdoor Roth: you want the money out of the after-tax bucket before it generates taxable earnings. You can usually turn automatic conversions on through NetBenefits or by calling Fidelity. If your plan doesn’t offer automation, set a calendar reminder to convert manually after each payroll cycle. Even a few weeks of delay can generate taxable gains.

The Tax Bill You’re Triggering

Convert pre-tax money and the entire amount counts as ordinary income in the year of the conversion.⁴ A $50,000 conversion adds $50,000 to taxable income, which can push you into a higher marginal bracket. The rate on the converted amount is whatever your ordinary rate happens to be once the conversion income stacks on top of your other earnings.

Pay the tax from money outside your retirement account. Pulling 401(k) funds to cover the tax is a separate taxable distribution and may trigger the 10% early withdrawal penalty if you’re under 59½.⁵ This is where people underestimate the real cost of converting. Run the numbers before committing to a large pre-tax conversion.

After-tax contributions are different: you already paid income tax on them, so the contributions themselves convert tax-free and only the earnings are taxable. For a purely in-plan conversion where everything stays in the same 401(k), the plan handles the allocation: after-tax basis moves to the Roth side, and the associated earnings are treated as pre-tax money subject to tax.⁶

Downstream Effects on Your AGI

The taxable portion of a conversion raises your adjusted gross income, and several things key off AGI besides your federal bracket.

Medicare Premium Surcharges

Medicare bases Part B and Part D premiums on your modified AGI from two years prior. A large conversion in 2026 could raise your Medicare premiums starting in 2028. For 2026, the standard Part B premium is $202.90 per month, but if your individual MAGI exceeds $109,000 (or $218,000 on a joint return), surcharges can more than triple that amount.⁷ If you’re near Medicare age or already enrolled, build the two-year lag into your planning.

Net Investment Income Tax

The 3.8% net investment income tax applies when MAGI exceeds $200,000 (single) or $250,000 (joint).⁸ The conversion itself isn’t net investment income, but it inflates MAGI. If that pushes you above the threshold, your existing dividends, capital gains, and rental income get hit with the extra 3.8%. These thresholds are not indexed for inflation.

Tax Credit Phase-Outs

Higher AGI can shrink or eliminate income-based credits. The Lifetime Learning Credit, for example, phases out between $80,000 and $90,000 of MAGI for single filers and $160,000 to $180,000 for joint filers.⁹ A conversion in the wrong year can wipe out education credits you were counting on.

State Income Taxes

Most states with an income tax treat conversion income as ordinary income. Rates range from zero in states without an income tax to over 13% at the top bracket. In a high-tax state, the combined federal and state hit on a large pre-tax conversion can be substantial.

The Two Five-Year Clocks

Designated Roth accounts in employer plans run two separate five-year clocks, and mixing them up is a common mistake.

The Qualified Distribution Clock

To withdraw earnings completely tax-free, the designated Roth account must have been open at least five tax years, counted from January 1 of the year you first made a designated Roth contribution to the plan. You also need to be 59½, disabled, or deceased. Meet both and the entire withdrawal, contributions and earnings, comes out tax-free.¹⁰

The Conversion Recapture Clock

Each in-plan conversion starts its own five-year period. Withdraw any portion of a converted amount within five tax years of the conversion while you’re under 59½, and you may owe the 10% early withdrawal penalty on the taxable portion even though you already paid income tax at conversion. The period starts January 1 of the conversion year and ends December 31 of the fifth year.¹⁰ Rolling the converted amount to another designated Roth account or a Roth IRA doesn’t reset or eliminate the clock.

One detail that surprises people: if you later roll your designated Roth account into a Roth IRA, time spent in the 401(k) Roth doesn’t count toward the Roth IRA’s own five-year clock. If you already had a Roth IRA with contributions from a prior year, the IRA’s clock runs from that earlier contribution. If the rollover creates your first Roth IRA, a new five-year clock begins.¹⁰

The Conversion Can’t Be Undone

Before 2018, you could reverse a Roth conversion through recharacterization. The Tax Cuts and Jobs Act eliminated that option permanently. Any conversion made on or after January 1, 2018 is final, including conversions inside 401(k) and 403(b) plans.¹¹ Once the money lands in the designated Roth account, the tax bill is locked in. Model the liability before you submit, especially for large pre-tax balances.

No Required Minimum Distributions

Starting with the 2024 tax year, designated Roth accounts inside employer plans are exempt from required minimum distributions while the account owner is alive.¹² Before SECURE Act 2.0, Roth 401(k) accounts had to take RMDs even though Roth IRAs did not. That distinction is gone. Money you convert can sit in the plan’s Roth account indefinitely with no forced withdrawals at 73 or any other age.

The 1099-R You’ll Receive

After the conversion, Fidelity issues a Form 1099-R for the tax year it occurred, typically by January 31 of the following year.¹³ Box 1 shows the gross amount converted. Box 2a shows the taxable portion, which equals Box 1 for a pre-tax conversion and reflects only earnings for an after-tax conversion. Box 5 shows the after-tax basis that converted tax-free. Box 7 should carry distribution code G, indicating a direct rollover to a designated Roth account inside the same plan.¹⁴

You report the Box 2a amount as ordinary income on your Form 1040. For a purely in-plan 401(k) conversion, Form 8606 is generally not required because the 1099-R carries the information your return needs.¹⁵ Keep every 1099-R and conversion confirmation from Fidelity in your permanent records so you can track your Roth basis over time.

Withholding and Estimated Tax

An in-plan conversion has no tax withheld at the time of the transfer because the money never leaves the plan. You’re on the hook for making sure enough tax is paid during the year to avoid an underpayment penalty. The IRS expects you to have paid at least 90% of your current-year tax or 100% of your prior-year tax through withholding and estimated payments, whichever is smaller.¹⁶

The cleanest fix is to submit a new W-4 to your employer soon after the conversion, raising federal withholding for the rest of the year to cover the expected tax. If payroll adjustments won’t catch you up in time, send a quarterly estimated payment to the IRS using Form 1040-ES or Direct Pay. Falling short produces an underpayment penalty calculated on Form 2210, with interest on a quarterly basis.¹⁷

One Warning: Employer Stock

If your 401(k) holds appreciated employer stock, think carefully before converting those shares. Employer stock that qualifies for net unrealized appreciation treatment can be distributed in kind at separation from service and taxed at long-term capital gains rates on the appreciation, which is lower than ordinary income rates. Converting the stock inside the plan eliminates the NUA option, since the shares have to be distributed as actual stock, not converted internally, to qualify. The NUA rules also require you to distribute your entire vested balance in a single tax year, and prior distributions can disqualify you.¹⁸ If you hold a meaningful position in employer stock, work through the NUA analysis before converting any part of your account.

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