An in plan Roth conversion, known in the tax code as an in-plan Roth rollover, reclassifies vested pre-tax (or after-tax) dollars already inside your employer retirement plan into a designated Roth account in that same plan, so the money never leaves the plan and you never take personal receipt of it. The previously untaxed amount becomes ordinary income in the year of the transfer.
An in plan Roth conversion moves vested pre-tax or after-tax money into the designated Roth account of the same 401(k), 403(b), governmental 457(b), or (as of January 28, 2026) TSP, if the plan permits it. The pre-tax amount is taxed as ordinary income that year (Source: IRS Notice 2013-74). There are no income limits, no 10% penalty at conversion, and it cannot be reversed.
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). Unlike rolling plan money out to a Roth IRA, the funds never leave the plan.
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How does an in-plan Roth conversion work?
An in plan Roth conversion works as a direct rollover: a chosen dollar amount moves from a traditional (pre-tax) or after-tax source inside the plan into the plan’s designated Roth account. The previously untaxed portion is added to your taxable income for the year, but you receive no cash and only vested amounts are eligible (Source: IRS Notice 2013-74). No 10% penalty applies, and a converted otherwise-nondistributable amount keeps its earlier distribution restrictions.
Which plans allow in-plan Roth conversions?
In plan Roth conversions are available in 401(k), 403(b), governmental 457(b), and now Thrift Savings Plan (TSP) accounts, 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 conversion available? | Notes |
|---|---|---|
| 401(k) | Yes, if the plan 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 | May add a designated Roth program for years after 2010 |
| Thrift Savings Plan (TSP) | Yes, as of January 28, 2026 | New FRTIB rule; see below for federal employees |
In-plan Roth conversions in the TSP (2026 launch)
The Thrift Savings Plan began allowing in plan Roth conversions on January 28, 2026, under a Federal Retirement Thrift Investment Board (FRTIB) final rule published in the Federal Register on January 15, 2026 (document 2026-00765). Federal employees and uniformed-service members can now convert traditional (pre-tax) TSP balances, including agency contributions and earnings, into the Roth TSP (Source: FRTIB final rule; TSP.gov plan news, September 5, 2025).
The converted amount is taxed as ordinary income in the conversion year, and no tax is withheld from the transfer, so a TSP participant covers the bill through estimated payments or increased withholding. The same 5-year rules and irreversibility below apply to a TSP conversion.
Do you pay taxes on an in-plan Roth conversion?
Yes. You must include in gross income, in the year of the transfer, any previously untaxed amount you convert into the designated Roth account (Source: IRS, Roth Account in Your Retirement Plan). Converting pre-tax dollars creates ordinary income that year. When you convert after-tax (non-Roth) contributions, only the earnings are taxable, since the contributions were already taxed.
The converted pre-tax amount stacks on your other ordinary income and is taxed at the 2026 federal brackets of 10, 12, 22, 24, 32, 35, and 37 percent (Source: IRS Rev. Proc. 2025-32). For 2026 the 24% bracket runs to $201,775 (single) and $403,550 (married filing jointly), and the 32% bracket begins at $201,775 (single) and $403,550 (married filing jointly), so a large conversion can push part of the income into a higher bracket. Deciding how much to convert to Roth in one year often turns on where these lines fall.
There are no income limits on who may do an in plan Roth conversion, 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
An in plan Roth conversion is made by direct rollover, so the 20% mandatory withholding of §3405(c) does not apply and the 10% early-distribution tax does not apply at conversion (Source: IRS Notice 2013-74). No tax comes out of the transfer, so the full liability can arrive later.
The IRS notes a participant may need to increase withholding or make estimated tax payments to cover the tax (Source: IRS Notice 2013-74). Because federal income tax is pay-as-you-go, a large unwithheld conversion can trigger underpayment penalties. Many participants pay the tax with outside, non-plan funds, since using plan dollars reduces the amount that lands in Roth.
What is the 5-year rule for an in-plan Roth conversion?
Two separate 5-year periods apply to an in plan Roth conversion, and confusing them is a common error. The first governs whether earnings come out tax-free. The second is a recapture clock on converted principal withdrawn early. Each conversion starts its own recapture clock, unlike the single clock used for Roth IRA contributions (Source: IRS, Designated Roth Accounts FAQs).
The qualified-distribution 5-year clock
A qualified, fully tax-free distribution from your designated Roth account requires two things: at least five years since your first contribution to that Roth account, and you are at least age 59½, disabled, or deceased (paid to a beneficiary). This single clock starts with your first designated Roth contribution to the plan and covers the earnings (Source: IRS, Roth Account in Your Retirement Plan).
The recapture 5-year clock
Separately, if any part of a converted amount is distributed within the five-taxable-year recapture period, that distribution is subject to the 10% additional tax under §72(t) unless an exception applies or the amount is nontaxable basis. This period begins January 1 of the conversion year and ends December 31 of the fifth year, and each conversion starts a new one, so several conversions mean several overlapping clocks (Source: IRS, Designated Roth Accounts FAQs).
Can an in-plan Roth conversion be reversed?
No. An in plan Roth conversion 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.
Do in-plan Roth conversions still have RMDs?
No, not during the owner’s lifetime. 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 while the owner is alive (Source: Congressional Research Service IF12750; IRS Internal Revenue Bulletin 2024-33). Beneficiaries still follow post-death RMD rules. 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).
| 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 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 | Yes |
| Income limits to do it? | None | None | None to convert |
| Requires plan to permit it? | Yes | Yes (after-tax plus conversion feature) | Not plan-dependent for IRA money |
Is an in-plan Roth conversion a good idea?
Whether an in plan Roth conversion 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.
| Often cited as more favorable | 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 |
| Having non-plan cash on hand to pay the tax | The added income would trigger IRMAA or benefit surcharges |
| Wanting tax-free growth and tax-free inheritance for heirs | Little tolerance for locking money into a 5-year clock |
Because the decision often rests on the year the taxes paid are recovered, some investors model a Roth conversion break-even before acting.
How do I report an in-plan Roth conversion on my taxes?
Your plan reports an in plan Roth conversion on Form 1099-R, using 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. State income tax treatment varies.
IRMAA, Social Security, and Roth conversion ripple effects
An in plan Roth conversion raises your modified adjusted gross income (MAGI) for the year, which can matter beyond the income-tax bill. Higher MAGI can increase Medicare premium surcharges and the share of Social Security benefits that is taxable, 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 (IRMAA) use a two-year lookback, so a 2026 conversion can raise premiums in 2028. In 2026 the standard Part B premium is $202.90, and surcharges begin above $109,000 (single) and $218,000 (joint) MAGI. A conversion that also crosses $200,000 (single) or $250,000 (joint) can expose other income to the 3.8% net investment income tax, though the conversion itself is not net investment income. These MAGI dynamics also shape the timing and sizing of any Roth conversion. This is general education, not advice.
2026 contribution and limit figures to know
An in plan Roth conversion is separate from ongoing contributions, but the same 2026 plan limits frame how much Roth money you 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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Frequently asked questions
These answers summarize the federal tax rules for in plan Roth conversions under current IRS guidance. They are general educational information, not advice, and each plan’s own document controls what is permitted.
Is an in-plan Roth conversion a good idea?
It depends on individual circumstances, and this is educational information, not advice. Factors often weighed include your current versus expected future tax bracket, whether you have outside cash for the tax, your time horizon, and effects on MAGI-based items like Medicare IRMAA. A qualified professional can assess a specific situation (Source: IRS Notice 2013-74).
What is the 5-year rule for an in-plan Roth conversion?
Two 5-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, and each conversion starts its own clock; distributing converted amounts within five years can trigger the 10% tax (Source: IRS, Designated Roth Accounts FAQs).
Do you pay taxes on an in-plan Roth conversion?
Yes. You include the previously untaxed amount in gross income in the year of the transfer, taxed as ordinary income at your 2026 bracket (Source: 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 paid through estimated payments or added withholding.
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.
What is the difference between a Roth conversion and an in-plan Roth conversion?
A Roth conversion generally moves money out of a traditional IRA or employer plan into a Roth IRA. An in-plan Roth conversion keeps the money inside the same employer plan, moving it into that plan’s designated Roth account under §402A(c)(4). Both create ordinary income in the transfer year and have no income limits, but the in-plan version never leaves the plan (Source: IRS Notice 2013-74).
Is there a limit on in-plan Roth conversions?
There is no dollar cap and no income limit on how much you may convert through an in-plan Roth conversion; you can convert eligible vested amounts your plan document allows (Source: IRS Notice 2013-74). Separately, 2026 contribution limits still apply to new money going in: $24,500 in elective deferrals and a $72,000 total annual-additions limit (Source: IRS Notice 2025-67).
Are in-plan Roth conversions subject to the 10% early withdrawal penalty?
No. An in-plan Roth conversion is not subject to the 10% early-distribution tax at conversion because it is treated as a direct rollover, not a distribution. A recapture rule applies: if converted amounts are distributed within the five-taxable-year recapture period, that distribution can be hit with the 10% tax under §72(t) (Source: IRS, Designated Roth Accounts FAQs).
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); IRS newsroom IR-2025-111, https://www.irs.gov/pub/irs-drop/n-25-67.pdf
IRS Rev. Proc. 2025-32 (2026 tax inflation adjustments), https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
FRTIB final rule, Roth In-Plan Conversions (Federal Register 2026-00765); TSP.gov plan news (Sept. 5, 2025), https://www.federalregister.gov/documents/2026/01/15/2026-00765/roth-in-plan-conversions
SECURE 2.0 Act §325; Congressional Research Service IF12750; IRS Internal Revenue Bulletin 2024-33, https://www.irs.gov/pub/irs-irbs/irb24-33.pdf
IRS, Instructions for Forms 1099-R and 5498, https://www.irs.gov/instructions/i1099r
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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.
