To transfer a 401k to a Roth IRA, open a Roth IRA at the brokerage where you want the money to land, then ask your 401k plan administrator for a direct rollover to that account. The pre-tax portion of the balance becomes ordinary income in the year you convert, so you’ll owe federal (and usually state) income tax on it when you file. There is no income limit and no dollar cap on how much you can convert.
Confirm You Can Move the Money Now
Whether you can roll the balance out today depends on your job status and your plan’s rules. If you’ve left the employer that sponsors the 401k, the full balance is available to roll over at any time. If you still work there, the picture is tighter. Many plans allow an in-service distribution once you reach age 59½, but plans are not required to offer that feature, and some don’t permit any rollover before separation unless you qualify under a narrow exception like disability or plan termination.1Internal Revenue Service. 401(k) Resource Guide Plan Participants General Distribution Rules
Check your Summary Plan Description or call the plan administrator. Don’t assume in-service rollovers are available just because the IRS allows them at 59½. Your plan has to opt in.
Sort Pre-Tax Dollars from Roth 401k Dollars
Before requesting anything, find out what kind of contributions are inside the account. Designated Roth 401k contributions were already taxed on the way in, and moving them to a Roth IRA is a tax-free transfer. The administrator reports that portion with distribution code H on Form 1099-R, and Box 2a (taxable amount) shows zero.2Internal Revenue Service. Instructions for Forms 1099-R and 5498 (2025)
Traditional pre-tax 401k contributions are the ones that create a tax bill. The entire pre-tax balance, including all investment gains, becomes taxable ordinary income in the conversion year. If your account holds both types, the plan administrator can split them so the Roth portion moves tax-free and only the pre-tax portion is taxed.
No Income Limits, No Dollar Cap
Roth IRA conversions aren’t subject to the income phaseouts or annual contribution caps that apply to direct Roth IRA contributions. You can convert $10,000 or $1 million regardless of what you earn.3Internal Revenue Service. Retirement Plans FAQs Regarding IRAs The size of the tax bill is the practical constraint, not the rulebook.
Choose a Direct Rollover, Not an Indirect One
There are two mechanical paths, and one is almost always wrong.
A direct rollover (also called a trustee-to-trustee transfer) means the 401k plan sends the money straight to your Roth IRA custodian. The check is payable to the new brokerage “for the benefit of” (FBO) you, not to you personally. Nothing is withheld. The full balance moves intact, and you settle the tax bill when you file.4Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions This is the approach the tax code encourages under IRC Section 401(a)(31).5Legal Information Institute (LII). Definition: Eligible Rollover Distribution From 26 USC 401(a)(31)
An indirect rollover means the check is payable to you. The plan must withhold 20% of the taxable amount for federal taxes before cutting the check, even if you plan to roll every dollar over.1Internal Revenue Service. 401(k) Resource Guide Plan Participants General Distribution Rules You then have 60 calendar days to deposit the full original amount, including the 20% you’d need to replace from other funds, into the Roth IRA.4Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions Miss the 60-day window and the entire distribution becomes taxable, potentially with a 10% early withdrawal penalty on top if you’re under 59½. Use the direct rollover.
Step by Step: Completing the Direct Rollover
Open and fund a Roth IRA at your chosen brokerage first. You’ll need the Roth IRA account number and the custodian’s FBO mailing instructions, which are typically in the “Transfer” or “Rollover” section of the brokerage website. The FBO format usually reads something like “[Brokerage Name] FBO [Your Legal Name], Account #[Roth IRA number].” A check without proper FBO language can be rejected or treated as a personal distribution, so get this right.
Then request a direct rollover distribution form from your 401k plan administrator. In the payee field, enter the receiving custodian’s name in the FBO format above. Look for a “Type of Distribution” field and select the option for a direct rollover or Roth conversion. Choosing the wrong category can route the funds into a traditional IRA instead, which wouldn’t complete the conversion. For federal tax withholding, you can typically leave the election at zero on a direct rollover and pay taxes separately when you file. Every dollar withheld is a dollar that doesn’t compound tax-free inside the Roth.
Processing usually takes one to four weeks. Some plans mail the check directly to the new custodian; others mail it to your home. If it arrives at home and is made payable to the new custodian FBO you, forward it to the Roth IRA custodian right away. Most brokerages accept mobile deposit for rollover checks. Watch the Roth IRA account until the deposit posts, usually labeled “Rollover Contribution” or “Conversion.”
How Much You’ll Owe
The entire pre-tax amount you convert stacks on top of your other income and is taxed as ordinary income. There is no special conversion rate. If you earn $80,000 at work and convert $50,000, your taxable income jumps to at least $130,000 before deductions, and the extra $50,000 is taxed at whatever marginal rate it falls into. A conversion that looks modest on paper can push part of your income from the 22% bracket into 24%, or from 24% into 32%. Sit down with your most recent tax return and project the impact before you request the rollover.
One mistake to avoid: letting the plan withhold taxes from the conversion amount itself. If you convert $100,000 and the plan withholds $20,000, only $80,000 enters the Roth IRA. The $20,000 withheld is still treated as a distribution to you, and if you’re under 59½ it can face a 10% early withdrawal penalty on top of the income tax.6Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts Pay the tax bill from a checking or taxable brokerage account, and let the full conversion amount grow tax-free.
Spread the Conversion Across Years
Nothing forces you to convert everything at once. You can roll the 401k into a traditional IRA first (a tax-free move) and then convert portions to a Roth IRA over several years, controlling how much taxable income you add each year and keeping yourself in a lower bracket.
If you have $300,000 in a traditional IRA after the rollover and you’re in the 22% bracket with $20,000 of room before the next bracket, you could convert roughly $20,000 per year at 22% instead of converting the whole balance at once and paying 32% or more on much of it. The strategy works especially well during gap years between retirement and the start of Social Security or required minimum distributions, when other income may be temporarily low.
The Five-Year Rule If You’re Under 59½
Moving money into a Roth IRA doesn’t mean you can pull the converted amount out penalty-free right away. Each conversion starts its own five-year clock, beginning January 1 of the year you convert. Withdraw a converted amount before that clock runs while you’re under 59½, and you owe a 10% early withdrawal penalty on the taxable portion of the conversion.7Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs Once you reach 59½, the age-based penalty disappears regardless of the five-year clock.
When you do take Roth IRA distributions, the IRS applies a fixed ordering rule: original contributions come out first (always tax- and penalty-free), then converted amounts on a first-in, first-out basis, then earnings.8Internal Revenue Service. Instructions for Form 5329 (2025)
Reporting the Conversion on Your Return
You’ll receive Form 1099-R from the 401k plan by January 31 of the year after the conversion. For a direct rollover of pre-tax money to a Roth IRA, Box 7 shows distribution code G and Box 2a shows the taxable amount.2Internal Revenue Service. Instructions for Forms 1099-R and 5498 (2025) For designated Roth 401k money moved to a Roth IRA, look for code H with zero in Box 2a.
If you used the two-step approach (401k to traditional IRA, then traditional IRA to Roth IRA), you’ll also file Form 8606. Part II of that form tracks conversions from traditional IRAs to Roth IRAs. Either way, the converted amount flows into your Form 1040 as ordinary income. The $50 penalty tied to Form 8606 applies to failing to report nondeductible contributions to a traditional IRA, not to failing to report a conversion, but leaving conversion income off your 1040 exposes you to the standard IRS accuracy and underpayment penalties, which are steeper.9Internal Revenue Service. Instructions for Form 8606 (2025) Report everything and keep your 1099-R forms.
Watch for Medicare Premium Surcharges
If you’re near or past age 63, a large conversion can trigger income-related monthly adjustment amounts (IRMAA) on Medicare Part B and Part D premiums. Medicare uses your tax return from two years prior, so a conversion in 2026 affects your premiums in 2028. For 2026, the surcharges begin above $109,000 in modified adjusted gross income for single filers and $218,000 for joint filers.10Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles
At the top tier (single filers at $500,000 or more, joint filers at $750,000 or more), the Part B premium reaches $689.90 per month per person, compared to the standard $202.90, and Part D adds a surcharge of up to $91 per month.10Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles Spreading the conversion across multiple years to stay below the IRMAA thresholds is one of the most effective planning moves available.
If Your 401k Holds Employer Stock
One situation where you should pause before converting everything: highly appreciated company stock inside the 401k. A strategy called Net Unrealized Appreciation (NUA) lets you distribute the employer stock into a regular taxable brokerage account, pay ordinary income tax only on the stock’s original cost basis, and pay long-term capital gains rates on the appreciation when you eventually sell. Capital gains rates top out at 20%, compared to ordinary income rates as high as 37%.
To qualify, you have to take a lump-sum distribution of the entire balance from all plans of the same type in a single tax year, triggered by separation from service, reaching 59½, disability, or death. You can still roll the non-stock portion into an IRA. NUA only helps when the stock has appreciated significantly above your basis; if it hasn’t, a straight Roth conversion may still be the better path. The math here is complicated enough to warrant running the numbers with a tax professional before committing.