An in plan Roth conversion, known in the tax code as an in-plan Roth rollover, reclassifies pre-tax or after-tax dollars already sitting in your employer retirement plan into a designated Roth account inside that same plan, so the money never leaves the plan and you never take personal receipt of it. The previously untaxed amount you move becomes ordinary income in the year of the transfer.
An in-plan Roth rollover moves vested pre-tax (or after-tax) money into the designated Roth account of the same 401(k), 403(b), or governmental 457(b) plan, if the plan document allows it. The pre-tax amount is added to that year’s taxable income (Source: IRS Notice 2013-74). For 2026 the elective deferral limit is $24,500 (Source: IRS Notice 2025-67).
What is an in-plan Roth conversion?
An in-plan Roth conversion is a rollover of amounts within a single employer plan from a pre-tax or after-tax source into a designated Roth account in that same plan, authorized under Internal Revenue Code §402A(c)(4). The dollars stay inside the plan the entire time; nothing is distributed to you (Source: IRS Notice 2013-74).
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The mechanism was created by the Small Business Jobs Act of 2010 for 401(k) and 403(b) plans. The American Taxpayer Relief Act of 2012 later expanded it so even amounts not yet eligible for distribution, called otherwise-nondistributable amounts, can be converted (Source: IRS Notice 2013-74).
This is distinct from rolling employer-plan money out to a Roth IRA. Q3 Advisors covers the broader roll-out mechanics in a separate guide on 401(k)-to-Roth conversion rules. Here the defining feature is that the funds remain inside the same plan.
How an in-plan Roth conversion works
Mechanically, a chosen dollar amount is moved from a traditional (pre-tax) or after-tax source in the plan into the plan’s designated Roth account. The previously untaxed portion is added to your taxable income for that year, but you receive no cash and take no withdrawal, and only vested amounts are eligible to convert (Source: IRS Notice 2013-74; IRS, Roth Account in Your Retirement Plan).
Because the money never leaves the plan, an in-plan Roth rollover is treated as a direct rollover rather than an early distribution. When an otherwise-nondistributable amount is converted, that money and its earnings keep the same distribution restrictions that applied before the conversion (Source: IRS Notice 2013-74).
Which plans allow in-plan Roth conversions?
In-plan Roth rollovers are available in 401(k), 403(b), and governmental 457(b) plans, but only if the plan document permits them and the plan maintains a designated Roth account. No plan is required to offer the feature, so eligibility always starts with the plan document and the recordkeeper (Source: IRS Notice 2013-74).
| Plan type | In-plan Roth rollover available? | Notes |
|---|---|---|
| 401(k) | Yes, if the plan document permits and offers a designated Roth account | Original eligible plan type under SBJA 2010 |
| 403(b) | Yes, if permitted | Original eligible plan type under SBJA 2010 |
| Governmental 457(b) | Yes, if permitted | Allowed to add a designated Roth program for years after 2010 (SBJA §2111) |
How an in-plan Roth conversion is taxed
You must include in gross income, in the year of the transfer, any previously untaxed amount you roll over into the designated Roth account (Source: IRS, Roth Account in Your Retirement Plan). Converting pre-tax dollars therefore creates ordinary income that year. When you convert after-tax (non-Roth) contributions, only the earnings on those contributions are taxable, because the contributions themselves were already taxed.
The converted pre-tax amount stacks on your other ordinary income and is taxed at the applicable 2026 federal brackets of 10, 12, 22, 24, 32, 35, and 37 percent (Source: IRS Rev. Proc. 2025-32). Your plan reports the conversion on Form 1099-R, generally using distribution code G in box 7, and you carry the taxable amount to your federal return (Source: IRS, Instructions for Forms 1099-R and 5498). State income tax treatment varies and is not addressed here.
There are no income limits on who may do an in-plan Roth rollover, unlike direct Roth IRA contributions, which in 2026 phase out at $153,000 to $168,000 (single) and $242,000 to $252,000 (married filing jointly) (Source: IRS Notice 2025-67).
The withholding and estimated-tax trap
Because an in-plan Roth rollover is made by direct rollover within the plan, no withholding under §3405 applies, and the 10 percent early-distribution tax does not apply at the time of the conversion (Source: IRS Notice 2013-74). The 20 percent mandatory withholding of §3405(c) reaches eligible rollover distributions paid to the participant, not a direct rollover, so no tax is withheld and the full liability can come due later (Source: IRS, Instructions for Forms 1099-R and 5498).
The IRS notes that a participant may need to increase withholding elsewhere or make estimated tax payments to cover the tax on the conversion (Source: IRS Notice 2013-74). Because federal income tax is pay-as-you-go, a large unwithheld conversion can trip the underpayment penalty and safe-harbor rules unless quarterly estimated payments or added withholding are arranged. Some participants also pay the tax with outside, non-plan funds, since using plan dollars can reduce the amount that ends up in Roth.
The five-year rule and separate clocks
Two different five-year periods apply, and confusing them is a common error. The first governs whether earnings come out tax-free; the second governs a recapture penalty on converted principal withdrawn early. Each in-plan conversion starts its own recapture clock, unlike the single clock used for Roth IRA contributions (Source: IRS, Designated Roth Accounts FAQs).
The qualified-distribution five-year rule
A qualified, fully tax-free distribution from your designated Roth account requires two things: at least five years have passed since the first contribution to that Roth account, and you are at least age 59½, disabled, or deceased (paid to a beneficiary). This single five-year clock starts with your first designated Roth contribution to the plan and covers earnings (Source: IRS, Roth Account in Your Retirement Plan).
The recapture five-year rule
Separately, if any part of a converted amount is distributed within the five-taxable-year recapture period, that distribution is subject to the 10 percent additional tax under §72(t) unless an exception applies or the amount is nontaxable basis. This recapture period begins January 1 of the year of the conversion and ends December 31 of the fifth year, and each in-plan conversion starts a new one, so several conversions mean several overlapping clocks to track (Source: IRS, Designated Roth Accounts FAQs).
An in-plan Roth conversion is irreversible
An in-plan Roth rollover cannot be undone. The IRS states plainly that you may not recharacterize an in-plan Roth rollover, so the conversion and the taxable income it creates are permanent (Source: IRS, Designated Roth Accounts FAQs). This has always applied to in-plan rollovers, independent of the 2018 elimination of Roth IRA conversion recharacterizations, so the size and timing cannot be reversed later if circumstances change.
RMDs and designated Roth accounts under SECURE 2.0
Starting in 2024, designated Roth accounts in a defined-contribution plan are no longer subject to lifetime required minimum distributions (RMDs). Section 325 of the SECURE 2.0 Act of 2022 amended §402A(d) to remove that requirement during the owner’s lifetime (Source: Congressional Research Service IF12750; IRS Internal Revenue Bulletin 2024-33).
Before 2024, Roth 401(k) and Roth 403(b) accounts were subject to lifetime RMDs, unlike Roth IRAs, and some older explainers still repeat that outdated framing. Under current law, a designated Roth balance is not forced out during the owner’s life, though beneficiaries remain subject to post-death RMD rules (Source: IRS Internal Revenue Bulletin 2024-33). See the Q3 Advisors overview of required minimum distributions for 2026.
In-plan conversion vs. mega backdoor Roth vs. Roth IRA conversion
An in-plan Roth conversion moves money already in the plan into that plan’s Roth account. A mega backdoor Roth is one specific use of the same tool: converting after-tax 401(k) contributions to Roth. A Roth IRA conversion, by contrast, moves money out of the plan or a traditional IRA into a Roth IRA (Source: IRS Notice 2013-74; IRS, Roth Account in Your Retirement Plan).
| Feature | In-plan Roth conversion | Mega backdoor Roth | Roth IRA conversion |
|---|---|---|---|
| Where money ends up | Designated Roth in the same plan | Designated Roth in the same plan (or Roth IRA) | Roth IRA |
| Source converted | Vested pre-tax or after-tax plan dollars | After-tax 401(k) contributions and earnings | Traditional IRA or distributed plan dollars |
| Money leaves the plan? | No | Not required (can stay in plan) | Yes |
| Income limits to do it? | None | None | None to convert |
| Requires plan to permit it? | Yes | Yes (needs after-tax contributions plus conversion feature) | Not plan-dependent for IRA money |
When an in-plan Roth conversion may or may not make sense
Whether the strategy fits depends on facts such as your current versus expected future tax bracket, whether you have outside cash for the tax, and how long before you would need the money. The rules allow a conversion in any year with no income limit, but the value of paying tax now versus later is situational (Source: IRS Notice 2013-74). The points below are educational only.
| Situations often cited as more favorable | Situations often cited as less favorable |
|---|---|
| Expecting a higher tax bracket in the future | Expecting a lower tax bracket later |
| A temporarily low-income year | A near-term need for the funds (within five years) |
| After a market downturn, when balances are depressed | No outside cash available to pay the conversion tax |
| Anticipating a move to a higher-tax state | The added income would trigger costly IRMAA or benefit surcharges |
| Having non-plan cash on hand to pay the tax | Little tolerance for locking money into a five-year clock |
How to initiate an in-plan Roth conversion
The process is administered by your plan’s recordkeeper, not by you personally moving money, and the exact procedure varies from plan to plan. In broad terms, an in-plan Roth rollover typically involves confirming that the plan permits it, identifying eligible vested sources, submitting the recordkeeper’s request, and planning for the resulting tax. The steps below describe one common sequence for general reference (Source: IRS Notice 2013-74).
- Confirm the plan document permits in-plan Roth rollovers and maintains a designated Roth account.
- Identify which vested sources are eligible to convert, since only vested amounts qualify.
- Decide between a one-time conversion of a chosen amount and any automatic (recurring) conversion of after-tax contributions the plan may offer.
- Submit the recordkeeper’s in-plan Roth rollover request and confirm the taxable amount.
- The resulting tax is commonly addressed through estimated payments or added withholding, often funded from outside, non-plan dollars.
- The plan issues a Form 1099-R, which the participant carries to the federal return for the year of the transfer.
For an otherwise-nondistributable amount, no §402(f) rollover-options notice is required, which simplifies the paperwork (Source: IRS Notice 2013-74).
IRMAA, Social Security, and Roth conversion ripple effects
Because the converted pre-tax amount is added to income, it raises your modified adjusted gross income (MAGI) for the year, which can matter beyond the income-tax bill. Higher MAGI can affect Medicare premium surcharges and the taxation of Social Security benefits, so near-retirees often weigh these effects before converting (Source: IRS Notice 2013-74 on income inclusion).
Medicare Part B and Part D income-related monthly adjustment amounts use a two-year lookback, so a conversion today can influence premiums two years later; Q3 Advisors tracks the 2026 IRMAA brackets and premiums and the Social Security tax torpedo separately. These same MAGI dynamics shape the timing and sizing of any Roth conversion, since one that stays below a bracket or surcharge threshold can produce a different after-tax result than one that crosses it. This is general education, not advice.
2026 contribution and limit figures to know
An in-plan conversion is separate from ongoing contributions, but the same 2026 plan limits frame how much Roth money you can build. For 2026 the elective deferral limit for 401(k), 403(b), 457(b), and TSP plans is $24,500, and the total defined-contribution annual-additions limit that caps mega backdoor strategies is $72,000 (Source: IRS Notice 2025-67).
| 2026 limit | Amount | 2025 amount |
|---|---|---|
| Elective deferral (401k/403b/457b/TSP) | $24,500 | $23,500 |
| Age 50+ catch-up | $8,000 | $7,500 |
| Super catch-up (age 60-63) | $11,250 | $11,250 |
| Total DC annual-additions limit | $72,000 | $70,000 |
| IRA contribution limit | $7,500 | $7,000 |
| IRA catch-up (age 50+) | $1,100 | $1,000 |
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Q3 Advisors is a registered investment adviser focused on retirement tax planning. This article is educational and is not advice; for guidance on your own circumstances, consult a qualified tax or financial professional.
Frequently asked questions
These answers summarize the federal tax rules that apply to in-plan Roth rollovers under current guidance, including the penalty treatment, the two five-year periods, income-limit rules, and reporting. They are general educational information drawn from primary IRS sources, not tax or investment advice, and each plan’s own document controls what is actually permitted. A qualified professional can apply these rules to a specific situation.
Are in-plan Roth conversions subject to the 10% early withdrawal penalty?
No. An in-plan Roth rollover is not subject to the 10 percent early-distribution tax at the time of the conversion because it is treated as a direct rollover, not a distribution. A recapture rule applies, though: if converted amounts are distributed within the five-taxable-year recapture period, that distribution can be hit with the 10 percent tax under §72(t) (Source: IRS, Designated Roth Accounts FAQs).
Can an in-plan Roth conversion be reversed?
No. The IRS states you may not recharacterize an in-plan Roth rollover, so the conversion and the taxable income it creates are permanent (Source: IRS, Designated Roth Accounts FAQs). This has always applied to in-plan rollovers, separate from the 2018 rule change that ended Roth IRA conversion recharacterizations. Because it is irreversible, the amount and timing generally cannot be undone later.
How is an in-plan Roth conversion taxed?
You include the previously untaxed amount in gross income in the year of the transfer, taxed as ordinary income at your applicable 2026 bracket (Source: IRS, Roth Account in Your Retirement Plan; IRS Rev. Proc. 2025-32). If you convert after-tax contributions, only the earnings are taxable. No cash is withheld on a direct in-plan rollover, so the tax is generally paid through estimated payments or added withholding.
Is an in-plan Roth conversion a good idea?
That depends entirely on individual circumstances, and this is educational information rather than advice. Factors often weighed include your current versus expected future tax bracket, whether you have outside cash to pay the conversion tax, your time horizon before needing the funds, and effects on MAGI-based items like Medicare IRMAA. A qualified tax or financial professional can assess a specific situation (Source: IRS Notice 2013-74).
What is the difference between an in-plan Roth conversion and a mega backdoor Roth?
A mega backdoor Roth is a specific application of the in-plan conversion tool: it converts after-tax 401(k) contributions and their earnings into Roth. A general in-plan Roth conversion can convert vested pre-tax or after-tax plan dollars. Both keep money inside the plan and both require the plan to permit the feature (Source: IRS Notice 2013-74).
Do in-plan Roth conversions have income limits?
No. There are no income limits on doing an in-plan Roth rollover, which differs from direct Roth IRA contributions that phase out at higher incomes (in 2026, $153,000 to $168,000 for single filers and $242,000 to $252,000 for joint filers) (Source: IRS Notice 2025-67). Eligibility instead depends on whether your plan document permits the conversion.
What is the five-year rule for an in-plan Roth conversion?
Two five-year periods apply. A qualified, tax-free distribution of earnings requires five years since your first designated Roth contribution plus age 59½ (or disability or death). Separately, a recapture period begins January 1 of each conversion year; distributing converted amounts within five years can trigger the 10 percent tax. Each conversion starts its own recapture clock (Source: IRS, Roth Account in Your Retirement Plan and Designated Roth Accounts FAQs).
How do I report an in-plan Roth conversion on my taxes?
Your plan reports the conversion on Form 1099-R, generally with distribution code G in box 7, and you carry the taxable amount to your federal income tax return for the year of the transfer (Source: IRS, Instructions for Forms 1099-R and 5498). Because no tax is withheld on a direct in-plan rollover, many participants make estimated payments or increase withholding to cover it. A tax professional can confirm the correct reporting for your return.
Sources
IRS Notice 2013-74, In-Plan Roth Rollovers, https://www.irs.gov/pub/irs-drop/n-13-74.pdf
IRS, Roth Account in Your Retirement Plan, https://www.irs.gov/retirement-plans/roth-acct-in-your-retirement-plan
IRS, Retirement Plans FAQs on Designated Roth Accounts, https://www.irs.gov/retirement-plans/retirement-plans-faqs-on-designated-roth-accounts
IRS Notice 2025-67 (2026 plan limits), https://www.irs.gov/pub/irs-drop/n-25-67.pdf; IRS newsroom IR-2025-111, https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500
IRS Rev. Proc. 2025-32 (2026 tax inflation adjustments), https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
SECURE 2.0 Act §325; Congressional Research Service IF12750, https://www.congress.gov/crs-product/IF12750; IRS Internal Revenue Bulletin 2024-33, https://www.irs.gov/pub/irs-irbs/irb24-33.pdf
IRS Tax Topic No. 558, https://www.irs.gov/taxtopics/tc558
IRS, Instructions for Forms 1099-R and 5498 (2026), https://www.irs.gov/instructions/i1099r
IRS Publication 575, Pension and Annuity Income.
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Disclaimer
This article is provided by Q3 Advisors for general educational and informational purposes only. It is not tax, legal, investment, or financial advice, and it is not a recommendation to take or refrain from any action. Tax laws and dollar limits change and apply differently to each person’s circumstances; figures cited carry the year and source shown. Consult your own qualified tax or financial professional before acting. Q3 Advisors is a registered investment adviser; registration does not imply a certain level of skill or training. Additional information is available in the firm’s Form ADV.
