More plans now allow rollovers while you’re still on the job, but make sure you have enough money outside the account to pay taxes. By Kimberly Lankford, Contributing Editor April 12, 2013 Can I convert money in my 401(k) to a Roth 401(k) while I’m still working at my job?SEE ALSO: Are You Saving Enough for Retirement? Until this year, you generally couldn’t make the conversion while you were still working for the employer who sponsors your plan. But now the law has changed to permit the transfers. You can convert some or all of the money in your 401(k) to a Roth 401(k). If you do, you’ll have to pay taxes on that money for the year you make the conversion. But you can withdraw Roth 401(k) money tax-free in retirement, as you would with a Roth IRA. Although rollovers are permitted, not all employers offer the option yet. Only about 34% of the 401(k) plans administered by Fidelity offer Roth 401(k)s, for example, and only 12% of those plans have been amended to permit these in-plan conversions. Ask your plan administrator if you can make this move and, if so, what steps you’d need to take. Fidelity, for example, currently permits the conversion only over the phone, rather than online, so its representatives can explain the tax implications. Advertisement "The transaction itself is simple, but you want to make sure you’re planning for the fact that you’ll be hit with a pretty large tax liability," says Donna Norwood, senior vice-president of Fidelity. Be sure you have enough money outside of the account to pay the tax bill, so you don’t have to pay an early-withdrawal penalty to get the cash. Converting some money in your 401(k) to a Roth 401(k) can be a good opportunity to have some tax-free income available in retirement, especially if most of your retirement savings are in a tax-deferred account with your current employer. "We always talk about being diversified among the asset classes in your plan, but it also helps to be tax-diversified," says Norwood. The decision to convert money from a 401(k) to a Roth 401(k) is similar to the decision to convert from a traditional to a Roth IRA (although, unlike with IRAs, you can’t "recharacterize" a Roth 401(k) conversion and switch that money back to a traditional 401(k) later). See 7 Myths About Roth IRA Conversions and Should You Convert to a Roth IRA? for more information about the conversion decision. Got a question? Ask Kim at firstname.lastname@example.org.