Should You Convert Your Traditional 401(k) to a Roth?
Pay taxes today or pay them decades from now? Here is how to calculate whether an in-plan Roth conversion is the right move for your retirement wealth.
You may be able to convert your traditional 401(k) into a Roth 401(k) if your employer allows it. It boils down to when you want to pay taxes on your retirement savings: while you are working or after you retire.
The Roth 401(k) is a powerful retirement planning tool. According to Vanguard Research (PDF), 98% of its retirement plans offered Roth 401(k)s in 2025. Yet, the adoption of Roth 401(k)s has been relatively low, at 18%. "This slow but steady adoption over recent years indicates rising awareness and interest in tax-diversified retirement strategies," noted Saïd Israilov, a CFP and a fiduciary financial adviser.
If you had the option to save in a Roth 401(k) but chose the traditional plan instead, you may convert a traditional 401(k) into a Roth 401(k).
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Such 401(k) "in-plan" conversions are ideal for high-income earners who may not qualify for the maximum Roth IRA contribution or those who want to avoid the tax hit during retirement.
Converting a 401(k) into a Roth 401(k)
A conversion could be a good option, depending on your financial situation and goals. Yet, the ability to make this move depends on several factors, such as your age, the amount of cash available to pay current taxes, and expectations for future tax rates. You should also check whether your employer allows in-plan conversions; only 36% did in 2025.
Given that a conversion is a major financial decision, is irreversible and may be complex, you should seek the assistance of a qualified financial retirement planner or tax adviser.
The primary difference between the plans is how they are taxed. With a traditional 401(k), you contribute on a pre-tax basis. This means contributions are deducted from your gross income, reducing your taxable income. However, you pay income tax on withdrawals. This means you'll pay taxes on both the original contributions and any growth.
On the other hand, contributions to a Roth 401(k) are made with after-tax dollars — that is, you do not get a reduction in taxable income. Instead, the advantage comes in retirement. Your qualified withdrawals are tax-free. This holds true so long as the account has been open for at least five years and you’re over 59½.
A Roth 401(k) can be a great option if you earn too much to qualify for a Roth IRA. In 2026, to contribute the maximum amount to your Roth IRA ($7,500 or $8,600 if you are 50 or older), your income must be no more than $153,000 for single filers or $242,000 for those married filing jointly. When you exceed those income levels, the amount you may contribute diminishes. A Roth 401(k) has no such income limits. Review what Roth IRAs are and how they work before deciding between the two plan types.
The 401(k) conversion process
Converting your traditional 401(k) into a Roth 401(k) is called an "in-plan Roth conversion." This can also be done with 403(b) and 457(b) plans.
Converting to a Roth 401(k) involves three basic steps.
First, you must verify that a plan offers conversions. You can do this by reviewing the plan documents or contacting the plan administrator.
Second, you’ll need to see which assets in your traditional 401(k) are eligible for the conversion. Some may be prohibited, such as:
- Hardship distributions
- Required Minimum Distributions (RMDs) are when you need to withdraw money from your retirement account when you reach age 73 or 75, depending on birth year
- Excess contributions and excess deferrals
- Dividends from employer securities
Finally, calculate the additional taxes you'll pay for the conversion. If you are bumped up to a higher tax bracket, you may decide to convert some, but not all, of your traditional 401(k). Or you may elect to convert a certain amount each year.
David Talley, CFP and EA at Talley Wealth, said the conversion process is usually simple.
“If [the option is] there, it's usually a form or a few clicks on the plan's website, and you pick the dollar amount. I'd decide that amount with a tax projection in hand before you ever log in.”
401(k) contribution limits
Traditional and Roth 401(k)s are funded by your contributions through payroll deductions. Traditional and Roth 401(k)s have significantly higher contribution limits than Roth IRAs, particularly with the introduction of "super catch-up" contribution limits to some 401(k) plans in 2025.
The deadline for contributing to a 401(k) is December 31 each year. The annual contribution limits are the same for both types of 401(k) plans, as outlined below for 2026.
Contributions |
2026 |
|---|---|
Employee limit |
$24,500 |
Catch-up contribution if 50 and over |
$8,000 (must be in a Roth 401(k) for those who earned over $150K in the prior year) |
Super catch-up for ages 60, 61, 62, 63 |
$11,250 (must be in a Roth 401(k) for those who earned over $150K in the prior year). |
For most people, reaching these contribution limits is a stretch. But if you have a very high income, you might be able to contribute even more with a mega backdoor Roth.
Plan for higher taxes in the short term with a Roth 401(k)
When you make a conversion, the assets in your 401(k) will be added as taxable income for the year of the conversion. This can significantly increase your tax liability.
“You want to make sure you have enough cash to cover your taxes,” said Natasha Howe, a wealth manager and vice president at Siebert Financial.
When making a conversion, a key consideration is the future impact of tax rates.
"If you expect tax rates to be higher in the future, converting now may make sense, as it allows you to effectively prepay the taxes at current rates," said Phillip Battin, President and CEO of Ambassador Wealth Management. "If you think your income will increase dramatically in the future, you can prepay the taxes now while you're making less income, potentially saving taxes in the long run."
Let’s take an example. Suppose you have $200,000 in your traditional 401(k) and are in the 24% tax bracket today, but expect to be in the 32% bracket in retirement.
If you convert, you must pay $48,000 in taxes today. Your $200,000 then grows tax-free. If it doubles to $400,000 by retirement, you keep the entire $400,000.
If you don't convert, your $200,000 still doubles to $400,000, but you will owe 32% ($128,000) when you withdraw it, leaving you with just $272,000. Even if you took the $48,000 you saved on taxes today and invested it in a standard brokerage account, that money wouldn't grow enough to offset the huge $128,000 future tax bill. By converting while your tax rate is low, you lock in thousands of dollars in additional wealth.
Note that 401(k) catch-up contribution rules changed for high earners (those making $150,000 or more). Those workers must make their catch-up contributions on a Roth basis, meaning their taxable income will increase in the year they make the catch-up contribution.
If you live in a high-tax state, such as California or New York, you'll need to factor in excess income from the conversion. One approach for those with large Roth accounts is to convert to a Roth if you move to a low-tax state, a strategy known as the Florida Flip.
Roth 401(k)s don't have RMDs
Roth 401(k)s are exempt from required minimum distributions (RMDs). This can result in lower costs for Medicare — such as for Part B and Part D premiums, which are based on income — and in how much of your Social Security benefits are taxed.
Keep in mind that a very large conversion at age 63 or later might trigger Medicare surcharges, known as IRMAA.
"Roth 401(k)s can also make a better estate planning tool, due to the new rules on inherited IRAs," said Elizabeth Schleifer, a CFP and financial adviser at D.C.-based Armstrong, Fleming & Moore.
401(k) investment options
Both types of 401(k) plans typically offer a range of investment choices, including mutual funds and exchange-traded funds (ETFs). Popular choices include target-date funds, which tailor investment risk to when you want to retire. Sometimes, these funds are offered as collective investment trusts, which may have lower fees but less transparency.
So, should you convert to a Roth 401(k)?
Like so many decisions in life, the answer here is "it depends." These are the primary factors to consider.
Yes, convert a traditional 401(k) to a Roth 401(k). By converting, you may reap these Roth 401(k) benefits:
- Reduce your taxable income in retirement.
- Add tax diversification to your retirement strategy.
- No RMDs.
- A valuable tool for estate planning.
No, keep your traditional 401(k).
- If your tax burden is higher now than it may be in retirement, you'll pay lower taxes.
- Be sure you can absorb the tax implications of RMDs in retirement.
A little of both
A traditional 401(k) to Roth 401(k) conversion is not an all-or-nothing choice. Your decision should focus on your tax bracket now versus in retirement and your ability to manage higher taxable income in the year you convert. You may elect to convert some money this year and some next year for your tax bill's sake.
These are undoubtedly complex matters. This is why it's essential to seek the help of a qualified tax or financial adviser when considering a conversion.
Read More
