How to Convert a 401(k) to a Roth IRA?

A 401(k) is a retirement account with money that hasn’t been taxed, while a Roth IRA is a retirement account with money that has already been taxed.

If you convert a 401(k) to a Roth IRA, the converted amount will count as income, and you’ll need to pay taxes on it. 

Keep in mind that if you make over $150,000 as a single filer or $236,000 for joint filers, you’re not eligible for a Roth account. Roth accounts are also limited to $7,000 per year ($8,000 if you’re over 50) in contributions. 

Required income: There are income exclusions for opening a Roth account. In 2025, if you make over $150,000 as a single filer or $236,000 as joint filers, you cannot contribute to a Roth IRA. You’ll need to contribute to a traditional IRA; however, it may be possible to transfer that money over via a backdoor Roth IRA conversion.

Contribution limits: The contribution limits for a Roth IRA account are $7,000 per year for people under 50, $8,000 if you’re over 50. This is important to note for conversions because you’re limited in how much you can convert over from your 401(k). 

Tax treatment: Since money in a 401(k) was contributed in pre-tax dollars, you’ll need to pay taxes on the money you convert from a 401(k) to a Roth IRA. This adds money on top of your current income, and the tax consequences could be large. 

Restrictive 401(k)s: Your plan may not allow for conversions unless you’re leaving your employer or plan sponsor. 

Money grows tax-free: You won’t owe taxes while your money is growing in your Roth IRA account. 

Money is withdrawn tax-free in retirement: Since you pay taxes on money before contributing it to a Roth account, you won’t owe taxes in retirement with a Roth IRA. 

No minimum distributions required in retirement: Roth IRA accounts don’t require minimum distributions (RMDs) in retirement. This offers more flexibility in preserving the principal and estate planning. 

Withdrawals on principal have no tax penalties: In a Roth IRA account, there are no tax penalties for withdrawals of the principal, unlike a 401(k), which has a 10% penalty on all withdrawals. Withdrawals of Roth IRA earnings do, however, incur tax and penalties. 

Leave tax-free money to your heirs: Your heirs won’t need to pay income taxes on money left to them in a Roth IRA. 

Pay taxes on current-year income: The money you convert to a Roth IRA from a 401(k) will be taxed (unless there is money in there that you have already paid taxes on). It will be added to your current income in the year you do the conversion. If there’s a lot in your 401(k), that could add a substantial amount to your income and increase your tax due. 

Limitations on income: You need to make less than $150,000 if you’re a single filer and $236,000 if you’re a joint filer to be eligible for a Roth account. 

Limitations on contributions: You can only contribute up to $7,000 in a Roth IRA ($8,000 if over 50) in 2025. (Note: This doesn’t apply to Roth conversions.)

Roth conversions can’t be undone: Once you’ve moved your funds over to a Roth IRA, you can’t go back to a 401(k). 

Immediately: If the balance in your 401(k) is relatively low and you have the funds on hand to pay the taxes, a total conversion of your 401(k) could make sense. Generally, the longer you have to retire, the easier it is to make the conversion. 

Over several years: If there’s a lot of money in your 401(k), you may want to consider converting the funds over several years to spread out the taxes you’ll owe. If you convert a large amount in a single year, you could push yourself into a higher tax bracket. 

At retirement: Some advisors recommend converting your 401(k) at retirement, but before receiving social security benefits. This is usually when your income is at its lowest, and the amount you’d owe in taxes would be less. However, you’ll owe taxes on the many years of growth on the full amount at retirement.

When you’re in a lower tax bracket: Since you’ll owe taxes on the money you convert, a great time to switch over to a Roth account is when you’re in a lower tax bracket. These are times when you have kids at home, take parental leave, make less money, take a sabbatical, or experience job loss. 

When you move: If you’re planning to move to a state with lower income taxes, you could pay fewer taxes by waiting to convert your 401(k) to a Roth IRA until you move. 

When the market drops: When your account balance drops, you’ll have less money to pay taxes on. Market dips aren’t fun, but you can minimize taxes owed on a Roth conversion.

When you leave your employer: Generally, you’ll only be able to roll over your 401(k) to a Roth IRA when you leave your employer or if the plan allows for conversions. If you lose your job, you might be able to take advantage of the lower tax bracket to make the conversion. 

Leave it: If you’ve left a job, you’ll likely need to roll over your 401(k) to a new provider. This could be a great time to convert to a Roth IRA, but if your employer continues to sponsor your 401(k), you may want to leave it and let it grow. 

Roll over to new 401(k): If you’re changing employers or starting to work for yourself, you can roll over your 401(k). This process involves moving funds from one 401(k) to another 401(k) account. The tax treatment is the same, so you won’t pay taxes like you would with a Roth IRA conversion. 

Convert to a Roth 401(k): You may be able to convert your 401(k) to a Roth 401(k) if you’re staying with your employer. A Roth 401(k) changes the way the account is taxed, but allows for higher contribution limits. 

Convert to a traditional IRA: If your income is too high, you may not be able to contribute to a Roth IRA. The workaround is a backdoor Roth conversion where you first roll over your 401(k) to a traditional IRA. You’ll have a wider range of investment options with a traditional IRA when compared with a 401(k). 

Cash out: Cashing out a 401(k) incurs tax and penalties. You’ll owe taxes on the amount withdrawn plus a 10% penalty. 

If you don’t have the cash to pay the taxes on the conversion. 

If you need the funds in the next five years.

If you expect to be in a lower tax bracket in retirement. 

If you’re pushed into a higher tax bracket by the conversion. 

If you’re moving to a state with low or no state income tax.