To convert a 401(k) to a Roth IRA, you move pre-tax retirement dollars into a Roth account and pay ordinary income tax on the amount in the year you convert, in exchange for potentially tax-free qualified growth and withdrawals later. Most people arrive here asking two things: what are the exact steps, and can it be done without taxes. This guide walks through how to convert a 401(k) to a Roth IRA step by step, what you will owe in 2026, the honest answer on doing it tax-free, and the in-plan versus roll-to-IRA decision that most explainers skip.
No, a pre-tax 401(k) to Roth IRA conversion cannot be done fully tax-free. The converted amount is added to your ordinary income and taxed at your 2026 marginal rate of 10% to 37%. Only after-tax (basis) dollars move over tax-free. You cannot avoid the tax, but you can manage it by converting in lower-income years and sizing each conversion to a target bracket. (Source: IRS Publication 590-B; IRS Instructions for Form 8606)
How to convert a 401(k) to a Roth IRA (step by step)
Converting a 401(k) to a Roth IRA follows a short sequence: confirm you are eligible to move the money, open the Roth IRA, choose how much to convert for the year, request a direct trustee-to-trustee rollover to avoid the mandatory 20% withholding, pay the tax from outside cash, and report the conversion on Form 8606. The move is taxable, but it is not penalized when handled as a rollover.
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Moving a 401(k) to a Roth IRA changes the tax character of the money. Traditional 401(k) contributions went in pre-tax, so nothing has ever been taxed. Recognizing that amount as income now is what buys you a Roth IRA that can grow without further tax and, for qualified distributions, come out tax-free. This is different from an ordinary rollover: rolling a traditional 401(k) into a traditional IRA keeps the same pre-tax status and is not a taxable event, while a conversion changes the tax status, which is why tax is due (Source: IRS Publication 590-B). For the broader picture, see Q3’s overview of a Roth conversion strategy.
Two paths: an in-plan Roth conversion or rolling out to a Roth IRA
There are two broad routes to get pre-tax 401(k) money into Roth. If your plan offers an in-plan Roth conversion, you can convert pre-tax dollars into the Roth side of the same 401(k) without leaving the plan. Alternatively, you can roll the 401(k) out and convert to a Roth IRA. Some plans permit a direct conversion straight to a Roth IRA in one transaction; where they do not, the common two-step method rolls the 401(k) into a traditional IRA first (not taxable) and then converts that IRA to a Roth. All three routes produce the same taxable income; they differ in flexibility and control, which the decision table further down compares.
The steps
- Confirm eligibility. Check whether your plan allows an in-service conversion or rollout, or whether you must have separated from service or reached age 59½.
- Open the destination account (a Roth IRA, plus a traditional IRA first if you are using the two-step method).
- Decide the amount. Size the conversion to a target bracket, and keep modified adjusted gross income (MAGI) in mind for IRMAA, NIIT, and Marketplace thresholds. Q3’s guide on how much to convert to Roth walks through the sizing.
- Request a direct rollover. Ask for a trustee-to-trustee transfer to avoid the mandatory 20% withholding on amounts paid to you (Source: IRS Topic No. 413).
- Plan how to pay the tax. Arrange estimated payments or withholding from other income, ideally paying from non-retirement cash.
- Take any required minimum distribution first if you are 73 or older.
- Complete the conversion by December 31 for it to count in that tax year.
- Report it. You will receive Form 1099-R showing the distribution and report the conversion on Form 8606 with your return (Source: IRS Instructions for Form 8606).
Direct vs. indirect rollover and the 20% withholding trap
How the money physically moves matters. A direct (trustee-to-trustee) rollover sends funds straight from the plan to the receiving account and avoids the mandatory 20% federal withholding that applies to eligible rollover distributions paid to you. An indirect rollover pays the money to you first; the plan must withhold 20% for federal tax, and you have 60 days to deposit the full original amount into the Roth IRA. To convert the whole balance, you have to replace that withheld 20% out of other cash, or the shortfall is treated as a distribution (Source: IRS Topic No. 413; IRS, “Rollovers of retirement plan and IRA distributions”). For this reason, many converters use a direct rollover so the full balance moves without withholding to front.
| Feature | Direct rollover | Indirect (60-day) rollover |
|---|---|---|
| Who receives the funds | Receiving custodian (trustee-to-trustee) | You personally |
| Mandatory 20% withholding | No | Yes, on the taxable amount |
| Deadline to complete | Not applicable | 60 days to redeposit the full amount |
| Risk | Low | Must front the withheld 20% or it counts as a distribution |
How much tax will you owe to convert a 401(k) to a Roth IRA?
The converted amount is added to your ordinary income for the conversion year and taxed at your marginal rate, from 10% up to 37% in 2026 (Source: IRS; OBBBA, P.L. 119-21). There is no separate “conversion tax,” just ordinary income tax. Because the conversion stacks on top of your other income, a large amount can push part of it into a higher bracket, so many convert only enough to fill a target bracket.
The table below is a simplified illustration of federal tax at a single flat marginal rate. A real conversion often spans two or more brackets, so treat these as arithmetic examples, not a quote of your bill.
| Amount converted | At 12% marginal | At 22% marginal | At 24% marginal | At 32% marginal |
|---|---|---|---|---|
| $25,000 | $3,000 | $5,500 | $6,000 | $8,000 |
| $50,000 | $6,000 | $11,000 | $12,000 | $16,000 |
| $100,000 | $12,000 | $22,000 | $24,000 | $32,000 |
| $200,000 | $24,000 | $44,000 | $48,000 | $64,000 |
Illustration only. If you convert $100,000, that amount is added on top of your existing income and taxed across whatever 2026 brackets it fills, so the effective rate is usually a blend, not one flat number. Actual federal tax depends on your total taxable income, filing status, and state tax. See how much tax you may pay on a Roth conversion.
Paying the tax from outside the account (the under-59½ trap)
Paying the conversion tax from outside (non-retirement) cash lets the full converted amount stay in the Roth and grow. If instead you have tax withheld from the conversion itself, less money reaches the Roth, and for someone under 59½ that withheld slice can be treated as an early distribution subject to the 10% additional tax (Source: IRS Topic No. 413). Covering the bill from a checking, savings, or taxable brokerage account keeps the entire converted amount working inside the Roth. The plan or custodian issues Form 1099-R, and you report the conversion on Form 8606, which also tracks any after-tax basis (Source: IRS Instructions for Form 8606).
Can you convert a 401(k) to a Roth IRA without paying taxes?
The honest answer is no for pre-tax money. A traditional 401(k) holds dollars that were never taxed, so converting them is fully taxable as ordinary income in the conversion year. What is tax-free is any after-tax (basis) portion, such as after-tax 401(k) contributions. You cannot eliminate the tax on pre-tax dollars, only manage the bracket and timing. (Source: IRS Publication 590-B)
The “convert without taxes” search usually comes from someone who has heard conversions are taxable and is hoping for a workaround. It is worth being plain: for ordinary pre-tax balances, there is no legitimate way to make the conversion tax-free. Anyone promising a fully tax-free conversion of pre-tax dollars is describing something that does not exist. What follows is what genuinely moves tax-free, and how to shrink (not erase) the bill.
What actually transfers tax-free, and the pro-rata rule
If your 401(k) holds after-tax (non-Roth) contributions, that basis has already been taxed and can generally move to a Roth IRA tax-free; only the associated earnings are taxable when converted. Plans that allow after-tax contributions plus in-plan or split rollovers are the basis of the so-called mega-backdoor approach, and IRS Notice 2014-54 lets many plans direct the after-tax portion to a Roth IRA while the pre-tax portion goes to a traditional IRA. Once pre-tax and after-tax dollars are commingled inside traditional IRAs, the pro-rata rule applies: you cannot cherry-pick only the after-tax slice to convert. Each conversion is treated as a proportional mix of pre-tax and after-tax money across all your traditional, SEP, and SIMPLE IRAs, which is why “just convert the after-tax part” usually does not work at the IRA stage.
Ways to reduce (not eliminate) the tax
You cannot avoid the tax on pre-tax dollars, but several approaches can lower the rate you pay on it. These are educational illustrations, not recommendations:
- Partial, multi-year conversions. Converting a set amount each year keeps the added income inside a target bracket instead of stacking a large amount into higher rates in one year.
- Low-income “gap” years. The window after leaving work but before Social Security and required minimum distributions begin is often the lowest-bracket stretch of a retirement. A Roth conversion ladder for early retirees can put that window to use.
- Convert on a market dip. Converting when account values are temporarily lower moves more shares for the same taxable dollar amount.
- Pair with deductions. A year with large deductions or charitable giving can absorb some conversion income.
- Watch the thresholds. Keeping MAGI below IRMAA, NIIT, and Marketplace cliffs can matter as much as the bracket itself.
In-plan Roth conversion vs. rolling to a Roth IRA: which is right for you?
An in-plan Roth conversion keeps the money inside the employer plan on its Roth side; rolling out converts it into a Roth IRA you control. A Roth IRA generally offers wider investment choice and more distribution flexibility, while a 401(k) may offer stronger federal creditor protection and, if you are still employed, may be the only door available until you separate. Both are taxable the same way.
| Factor | In-plan Roth conversion (stays in 401(k)) | Roll out to a Roth IRA |
|---|---|---|
| Investment choice | Limited to the plan menu | Broad, across most custodians |
| Distribution flexibility | Subject to plan rules | Generally more flexible |
| Creditor protection | Strong federal ERISA protection | Varies by state for IRAs |
| RMDs | Roth 401(k) no longer has lifetime RMDs (2024 on) | Roth IRA has no lifetime RMDs for the owner |
| Availability while working | May be the only in-service option a plan allows | Often requires separation or age 59½ |
| Fees and control | Plan-level fees; less control | You choose the custodian and cost |
If you are still employed, a plan’s rules, not the tax code, are usually the binding constraint. Some plans allow an in-plan Roth conversion before separation; many restrict any rollout until age 59½ or a qualifying event. If you have left the employer, rolling to a Roth IRA typically gives the most flexibility over investments, timing, and partial-conversion sizing.
The all-in cost: hidden surcharges a conversion can trigger
The income-tax bill is only part of the cost. Because a conversion raises your MAGI, it can lift Medicare IRMAA surcharges two years later, increase the share of Social Security benefits that is taxed, pull other investment income into the 3.8% NIIT, reduce Marketplace premium credits, and add state income tax. Weighing these together, not just the federal bracket, is what separates a conversion that pays off from one that does not.
This is the layer most explainers skip. A conversion can look reasonable on the federal-bracket math alone and still cost more than expected once these second-order items are added. Each is triggered by the same thing: the conversion increases your modified adjusted gross income for the year.
Medicare IRMAA (a two-year delayed surcharge)
Medicare uses a two-year MAGI lookback, so your 2026 Part B and Part D surcharges are based on the MAGI reported on your 2024 return (MAGI here means AGI plus tax-exempt interest) (Source: SSA POMS HI 01101.020). A conversion done today can therefore raise your Medicare premiums two years later. For 2026, the first IRMAA tier begins above $109,000 for single filers and $218,000 for joint filers, so income at or below those amounts carries no surcharge. The 2026 standard Part B premium is $202.90 per month, with a $283 annual Part B deductible (Source: Federal Register, doc. 2025-20251). See Q3’s 2026 Medicare IRMAA brackets and premiums.
Taxation of Social Security benefits
Adding conversion income can increase the portion of your Social Security benefits subject to federal tax, up to a maximum of 85% of benefits, depending on your combined income. For retirees, this interaction can make a conversion effectively cost more than the stated bracket. See how Social Security benefits are taxed in 2026.
Net Investment Income Tax (NIIT)
Conversion income is not itself net investment income and is not directly subject to the 3.8% NIIT. But the conversion raises your MAGI, and if that pushes MAGI above the NIIT threshold, your other investment income (interest, dividends, capital gains) can be dragged into the 3.8% surtax. The thresholds are $200,000 single or head of household, $250,000 married filing jointly, and $125,000 married filing separately, and they are not inflation-indexed (Source: IRS Topic No. 559; IRS Instructions for Form 8960).
Marketplace premium credits and state income tax
For pre-Medicare retirees buying coverage through the Marketplace, a conversion that raises MAGI can reduce or claw back premium tax credits. And most states tax conversion income as ordinary income, though treatment varies and a few states have no income tax. Any state-specific figure should be confirmed for your state. See Roth conversions and state taxes.
A hypothetical multi-year “fill the bracket” example
Rather than converting a large 401(k) all at once, many people convert a set amount each year to keep the added income inside a target bracket and below IRMAA and surtax thresholds. The hypothetical below shows how a partial, multi-year approach spreads the tax and controls MAGI. It is an illustration, not a projection or a recommendation, and does not reflect any actual client or outcome.
Consider a hypothetical married couple, both 63, retired, with $800,000 in a traditional 401(k), modest other income, and cash available to pay conversion tax from outside the retirement account. Suppose they want to keep MAGI under the 2026 first IRMAA tier of $218,000 joint (Source: SSA POMS HI 01101.020) and inside a middle bracket. A possible multi-year plan:
| Year | Amount converted (hypothetical) | Approx. federal tax at a 22% marginal rate | Goal |
|---|---|---|---|
| Year 1 | $90,000 | ~$19,800 | Stay inside target bracket, MAGI below IRMAA tier |
| Year 2 | $90,000 | ~$19,800 | Repeat before Social Security and RMDs begin |
| Year 3 | $90,000 | ~$19,800 | Continue drawing down the pre-tax balance |
The point is not a dollar figure but the method: convert in the lower-income window between retirement and the start of Social Security and RMDs, size each year’s conversion to a bracket ceiling, and watch MAGI against the IRMAA and NIIT thresholds. Whether the total tax paid over several years is recovered later depends on future tax rates, investment growth, how long the Roth is left to grow, and whether the tax is paid from outside cash. A Roth conversion break-even analysis models these variables for a specific household. This example is hypothetical and does not reflect any actual client or outcome.
Rules and pitfalls that cost people money
The most common surprises are the two separate 5-year rules, the fact that conversions cannot be undone, the need to satisfy required minimum distributions first at age 73 or older, and in-service eligibility limits while still working. There is no income limit on conversions, unlike Roth contributions. Understanding these before you convert avoids penalties and mistakes that cannot be reversed. (Source: IRS Publication 590-B)
Two different 5-year rules (do not conflate them)
- The conversion 5-year rule (penalty clock). Each conversion carries its own five-year period, starting January 1 of the tax year of that conversion. If you withdraw converted amounts before that period ends and before age 59½, the 10% early-distribution tax can be recaptured on the portion that was taxable at conversion, even though no income tax is due again (Source: IRS Publication 590-B). Once you are 59½ or older, the age-based exception generally removes the 10% additional tax, so this clock mainly matters for under-59½ converters.
- The earnings 5-year rule (tax-free clock). A separate five-year period determines whether the earnings in your Roth IRA come out tax-free as a qualified distribution. Pub 590-B notes this period is “not necessarily the same as” the conversion five-year period (Source: IRS Publication 590-B).
No income limit on conversions
Unlike Roth IRA contributions, which phase out for higher earners (the 2026 Roth IRA MAGI phase-out is $153,000 to $168,000 single and $242,000 to $252,000 joint, per IRS), there is no income limit and no dollar cap on conversions. Anyone can convert any amount regardless of income (Source: IRS Publication 590-B).
Conversions are irreversible
Recharacterizing (undoing) a Roth conversion has been permanently prohibited for conversions and rollovers made in tax years after December 31, 2017 (Source: IRS Instructions for Form 8606; IRS Retirement Plans FAQs regarding IRAs). Once done, a conversion stands, even if the market drops afterward, which is one reason people convert deliberately and often in smaller pieces.
Eligibility while still employed
While you still work for the employer sponsoring the 401(k), your ability to move money out may be restricted. Many plans allow distributions or in-service conversions only after you reach age 59½, separate from service, or meet another qualifying event. After you leave the employer, you generally have full access to roll over or convert the balance. Check your plan document or administrator.
RMDs must come out first (age 73 or older)
If you are subject to required minimum distributions (age 73, or 75 for those born in 1960 or later, the earliest age-75 RMD year being 2035), you must take that year’s RMD before converting, because an RMD is not an eligible rollover distribution and cannot go into the Roth. A conversion does not count as or satisfy an RMD (Source: IRS Publication 590-B). See required minimum distributions in 2026.
Roth 401(k) to Roth IRA is a different, non-taxable case
Rolling a Roth 401(k) into a Roth IRA is not a conversion and is not taxable, because both are already after-tax. This move can add investment flexibility and removes the account from the RMD rules that once applied to the Roth 401(k) (Source: IRS Publication 590-B).
The December 31 deadline
A conversion counts for the tax year in which the money actually moves. Because conversions are reported by calendar year on Form 1099-R and Form 8606, the transaction generally must be completed by December 31 to count for that year, unlike IRA contributions, which can be made until the filing deadline (Source: IRS Instructions for Form 8606). See the 2026 Roth conversion deadline.
When a 401(k) to Roth conversion makes sense, and when it may not
A conversion tends to look more favorable when you are in a lower-income year, expect higher future tax rates, want to reduce future RMDs, can pay the tax from outside cash, and value tax-free assets for heirs. It looks less favorable when you are already in a high bracket, may need the money within five years and are under 59½, or would have to pay the tax out of the conversion itself.
| May make sense when… | May not make sense when… |
|---|---|
| You are in a lower-income window (e.g., retired but before Social Security and RMDs) | You are currently in a high marginal bracket and expect a lower one later |
| You expect higher future tax rates | You may need the converted funds within five years and are under 59½ |
| You want to reduce future RMDs on a large pre-tax balance | You would have to pay the tax from the conversion itself |
| You can pay the tax from non-retirement cash | Adding income would spike IRMAA, NIIT, or a Marketplace clawback this year |
| Leaving tax-free assets to heirs is a priority | Your future tax picture is highly uncertain (the move is irreversible) |
Work with Q3 Advisors
Q3 Advisors is a registered investment adviser focused on retirement tax planning. This page is educational and is not advice; consult a qualified professional.
Frequently asked questions
Can you convert a 401(k) to a Roth IRA without paying any taxes?
Not for pre-tax money. A traditional 401(k) holds dollars that were never taxed, so converting them is fully taxable as ordinary income in the conversion year at your 10% to 37% marginal rate. Only after-tax (basis) amounts, such as after-tax 401(k) contributions, move over tax-free. You can manage the tax through timing and bracket sizing, but you cannot eliminate it on pre-tax dollars (Source: IRS Publication 590-B).
How much tax will I pay to convert my 401(k) to a Roth IRA?
The converted amount is taxed as ordinary income at your marginal rate, from 10% up to 37% in 2026 (Source: IRS; OBBBA, P.L. 119-21). A large conversion can span multiple brackets, so the effective rate is often a blend. Your actual bill depends on filing status, total taxable income, and state tax, plus any indirect costs like IRMAA or NIIT that the added MAGI can trigger.
What are the steps to move a 401(k) into a Roth IRA?
Confirm you are eligible to move the money, open a Roth IRA, decide how much to convert, request a direct trustee-to-trustee rollover to avoid 20% withholding, arrange to pay the tax from outside cash, take any RMD first if you are 73 or older, complete the transfer by December 31, and report it on Form 8606 using the 1099-R you receive (Source: IRS Instructions for Form 8606).
What is the difference between an in-plan Roth conversion and rolling out to a Roth IRA?
An in-plan Roth conversion keeps the money inside the same 401(k) on its Roth side; rolling out converts it into a Roth IRA you control at an outside custodian. Both are taxable the same way. A Roth IRA generally offers wider investments and more distribution flexibility, while staying in-plan may keep ERISA creditor protection and can be the only option a plan allows before you separate from service.
What is a direct vs. indirect rollover, and why does the 20% withholding rule matter?
A direct (trustee-to-trustee) rollover sends funds straight to the receiving account and avoids the mandatory 20% federal withholding on distributions paid to you. An indirect rollover pays you first, forces 20% withholding, and gives you 60 days to redeposit the full original amount. To convert the whole balance that way, you must replace the withheld 20% from other cash or it is treated as a distribution (Source: IRS Topic No. 413).
Can I convert my 401(k) to a Roth IRA while still employed?
Sometimes. Many plans restrict in-service conversions until you reach age 59½, separate from service, or meet another qualifying event, while some plans allow them earlier. There is no IRS income limit on conversions themselves; the constraint is your plan’s distribution rules. Check your plan document or ask the administrator before assuming you can convert while employed.
What is the 5-year rule for Roth conversions?
Each conversion has its own five-year clock starting January 1 of the conversion year. If you are under 59½ and withdraw converted amounts before that period ends, the 10% early-distribution tax can be recaptured on the taxable-at-conversion portion (Source: IRS Publication 590-B). A separate five-year rule governs whether earnings come out tax-free; the two clocks are distinct.
Is there a limit on how much I can convert to a Roth IRA?
No. Unlike Roth IRA contributions, which have annual dollar limits and income phase-outs, conversions have no dollar cap and no income limit (Source: IRS Publication 590-B). You could convert an entire 401(k) balance in one year, though the resulting income tax and MAGI-driven surcharges are why many people convert in partial amounts across several years.
Does a Roth conversion affect my Medicare premiums (IRMAA)?
It can, with a two-year delay. IRMAA uses a two-year MAGI lookback, so a conversion in 2026 is reflected in your 2028 Part B and Part D surcharges (Source: SSA POMS HI 01101.020). For 2026, the first IRMAA tier begins above $109,000 single and $218,000 joint; staying below the relevant tier avoids the surcharge for that year.
Sources
IRS, Publication 590-B, Distributions from Individual Retirement Arrangements (irs.gov/publications/p590b).
IRS, Instructions for Form 8606 (irs.gov/instructions/i8606).
IRS, Retirement Plans FAQs regarding IRAs (irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras).
IRS, Topic No. 413, Rollovers from Retirement Plans; “Rollovers of retirement plan and IRA distributions” (irs.gov/taxtopics/tc413).
IRS, Notice 2014-54, Guidance on Allocation of After-Tax Amounts to Rollovers (irs.gov/pub/irs-drop/n-14-54.pdf).
IRS, Topic No. 559, Net Investment Income Tax; Instructions for Form 8960 (irs.gov/taxtopics/tc559; irs.gov/instructions/i8960).
SSA, POMS HI 01101.020 and HI 01101.031, IRMAA (secure.ssa.gov/poms.nsf/lnx/0601101020).
Federal Register, “Medicare Part B Monthly Actuarial Rates, Premium Rates, and Annual Deductible Beginning January 1, 2026,” doc. 2025-20251.
IRS, tax rate schedules; top federal rate 37% (OBBBA, P.L. 119-21).
