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Roth In-Plan Conversion: How It Works for a 401(k)

Published Chris Urban, CFP®, RICP®, TPCP®Tax Planning

A Roth in-plan conversion moves pre-tax money in your 401(k) into a Roth account inside the same plan, if your plan allows it. The amount you convert is generally taxed as income that year, and later qualified withdrawals may be tax-free. It is a one-way step, so it helps to understand the limits first.

This article is educational. It is not a recommendation to convert, and it is not tax advice for your situation. The rules below come from the IRS sources listed at the end and are current as of November 12, 2026. Tax rules and plan options vary, and they change, so please confirm the details with your plan and a tax professional before you act.

What a Roth in-plan conversion is

Many 401(k) plans now offer two kinds of accounts: a traditional pre-tax account and a designated Roth account. A Roth in-plan conversion, which the IRS calls an in-plan Roth rollover, moves money from the pre-tax side of your plan to the Roth side. The money stays in the same plan, with the same plan administrator.

The possible benefit is that a qualified withdrawal from a designated Roth account, including the growth, is excluded from income. The IRS defines a qualified distribution as one made at least five years after the year of your first designated Roth contribution (counting that first year) and on or after age 59½, on account of disability, or after death.

Those benefits come with limits:

  • You generally owe income tax on the converted amount for the year of the conversion.
  • A conversion cannot be reversed once it is done.
  • A withdrawal that is not qualified may be partly taxable, and in some cases may carry an additional 10% tax.

Who can do one

Not every plan offers it, and that is the first thing to check. The IRS says a plan with a designated Roth program can allow in-plan Roth rollovers. That includes 401(k) plans, 403(b) plans, and governmental 457(b) plans, which are common for public-sector workers.

A few details that matter:

  • The plan decides. The plan can choose which sources are eligible and how often conversions can be done. The IRS lists elective deferrals, employer matching and nonelective contributions, after-tax employee contributions, and amounts rolled into the plan from another plan as examples a plan may allow. Your plan may allow some of these and not others.
  • Vested money only. Any vested balance, including earnings, can be rolled over if the plan permits it.
  • Age 59½ and other limits can still apply. Under IRS guidance, money converted before you can otherwise take a distribution generally stays subject to the distribution rules that applied to it before the conversion.
  • Spouses. The IRS says a surviving spouse beneficiary, or a spouse or former spouse who is an alternate payee, can also elect an in-plan rollover.

Your plan's summary plan description or its administrator can tell you whether the option exists and what the rules are.

How the converted amount is taxed

The IRS says an in-plan Roth rollover usually results in taxable income. For a typical rollover from a pre-tax account, the entire amount, including earnings, is included in gross income for the year of the rollover. If part of the money is after-tax basis, that basis is subtracted. There is no special multi-year spread for current conversions. The two-year spread applied only to certain rollovers made in 2010.

Here is what that looks like in practice:

  • It is added to your income for the year. The converted amount sits on top of your other income, which may push part of it into a higher tax bracket than you expected. Spreading a conversion over several years is one way some people manage that, but it is not right for everyone.
  • You may get a Form 1099-R. Even though the money never left the plan, the plan generally reports the rollover on a Form 1099-R for that year. A direct in-plan rollover is generally reported with code G.
  • Withholding is usually not automatic. The IRS says plan sponsors should not withhold tax from a direct rollover to a designated Roth account. That means no tax may be taken out at the time, and you may need to raise your withholding or make estimated tax payments to avoid a penalty. If you take any part of the money in cash instead, the plan must generally withhold 20% federal income tax from it.
  • The 10% early withdrawal tax does not apply to the conversion itself. However, the IRS says the converted amount may become taxable and subject to the additional tax if you withdraw it within five years, with exceptions that may apply. That five-year period is separate from the five-year period for qualified distributions.

Paying the tax from money outside the plan generally leaves more in the Roth account, but it uses other savings. Whether that trade-off makes sense depends on your cash, your bracket, and your plans.

In-plan conversion vs. converting an IRA

People often use "Roth conversion" for several different moves. They share one feature: converting pre-tax money to Roth is generally taxable. The differences are in the mechanics.

Roth in-plan conversionTraditional IRA to Roth IRA conversion
Where the money goesRoth account in the same employer planRoth IRA
Needs plan permissionYes. The plan must offer itNo, but you need money already in an IRA
How the taxable amount is figuredAmount rolled over, less any basis in that amount, per IRS guidanceGenerally pro rata across all of your traditional, SEP, and SIMPLE IRAs, using Form 8606
Can it be undoneNoNo. Conversions since 2018 cannot be recharacterized
Later required withdrawalsDesignated Roth accounts in employer plans have not required lifetime minimum distributions since 2024Roth IRAs do not require lifetime minimum distributions

The pro rata rule is the reason many people with after-tax IRA money find an IRA conversion harder to plan. Under that rule, you generally cannot pick only the after-tax dollars to convert, because the IRS has you count all of your traditional IRAs together. In-plan conversions are calculated differently, using the basis in the amount rolled over, so the two situations are not interchangeable. Your CPA can confirm how this applies to your accounts.

Two more points to keep in mind. First, if you leave your employer, or your plan lets you take money out while you are still working, you may have the option to roll pre-tax 401(k) money to a Roth IRA instead. That is a different transaction with its own rules. Second, an in-plan conversion keeps the money inside the plan, which means you stay within its investment choices, fees, and withdrawal rules. A Roth IRA may offer more flexibility, and it may not. It depends on the plan.

How it can interact with Medicare premiums and Social Security taxation

A conversion adds to your income for one year, and some other things are measured against that income.

  • Medicare premiums. Medicare uses your income from two years earlier to decide whether you pay an income-related surcharge (IRMAA) on Part B and Part D. A conversion done this year may show up in your premiums two years from now. I explain the lookback, the income tiers, and what a life-changing event review can and cannot do in my article on Roth conversions and Medicare premiums (IRMAA). The thresholds change each year, so use the current figures in that article's sources.
  • Taxation of Social Security. Extra income in a conversion year may cause more of your Social Security benefit to be taxable. That can add to the cost of a conversion in some years.
  • Required minimum distributions. Your pre-tax balance still has required minimum distributions. According to the IRS, you do not have to take lifetime withdrawals from a designated Roth account in a 401(k) or 403(b) plan, although beneficiaries are subject to the rules. Converting may reduce the pre-tax balance that future required distributions are based on, but it raises income in the year you convert.

Because these effects land in different years, I find it more useful to look at several years together than at one year alone. That is the focus of my income tax planning work. I do not prepare or file tax returns, so I work alongside your CPA to make sure the projections line up with how your return is actually prepared.

Questions to ask your plan and your CPA

Before anyone decides, a short list of questions can clear up most of the uncertainty.

For your plan administrator:

  • Does the plan have a designated Roth account, and does it allow in-plan Roth rollovers?
  • Which sources can I convert (my deferrals, employer match, after-tax money, rolled-in money)?
  • How often can I convert, and is there a minimum or maximum amount?
  • How are the investments in the converted amount handled?
  • Can I request tax withholding from the conversion, and what would that mean for the amount that ends up in the Roth account?
  • When will the Form 1099-R be issued, and how will it show the conversion?

For your CPA:

  • How much would the conversion add to my taxable income, and what bracket would the added income fall into?
  • Where would the tax payment come from, and do I need to make estimated payments?
  • How might the added income affect my Medicare premiums two years later and the taxation of my Social Security benefit?
  • Would spreading the conversion over more than one year change the picture?
  • Do I have any after-tax basis in the plan or in an IRA that changes the calculation?

Common questions about Roth in-plan conversions

Can I convert my 401(k) to a Roth IRA?

It may be possible, but it is a different move from an in-plan conversion. It generally requires that your plan allows you to take a distribution, for example after you leave the employer or at certain ages. The pre-tax amount you convert is generally taxable, and a conversion to a Roth IRA cannot be recharacterized. Ask your plan what distribution options it offers.

Is there a limit on how much I can convert in-plan?

The IRS says any vested plan balance, including earnings, can be rolled over to a designated Roth account if the plan permits it. Your plan, however, can limit which sources are eligible and how often you can convert. There is no one number that fits everyone, because the tax from a larger conversion may be significant.

Can I undo a Roth in-plan conversion?

No. The IRS says an in-plan Roth rollover cannot be reversed after the transfer is made, and the rolled-over amount cannot later be returned to the transferring account.

What is the sweet spot for a Roth conversion?

There is no single answer. Some people look at how much they could convert while staying within a particular tax bracket or below a Medicare income threshold, and some choose not to convert at all. The right amount, if any, depends on your income, your tax bracket now and later, how you would pay the tax, and your goals. Results vary and future tax law may change.

Does a conversion trigger the 10% early withdrawal tax?

The IRS says the additional 10% tax does not apply to the amount of the in-plan rollover. If you withdraw the converted amount from the designated Roth account within five years, though, it may be taxable and subject to the additional tax, unless an exception applies.

Who to talk with

Because a conversion touches your taxes, your Medicare costs, and your retirement income at once, it helps to review it as a whole. For my clients, that starts with an Initial Engagement, which I describe on my process page, and I bill by the hour with no asset-based fee, as shown on my fees page. I answer common questions about how hourly planning works on the FAQs page.

If you want to talk through whether this applies to you, schedule a free 30-minute introductory call. There is no cost for anything before you sign an agreement.

Sources

All sources were checked on November 12, 2026.

This article is for general education and is not personalized investment, tax, or legal advice. Tax rules and plan options vary and change, and what applies to you depends on your individual circumstances. Please consult a tax professional.