You may be able to convert your traditional 401(k) into a Roth 401(k) if your employer offers both types of plans. It boils down to when you want to pay taxes on your retirement savings: while you are working or when you are retired. The Roth 401(k) is a powerful, underutilized retirement planning tool. According to research from Vanguard, about 82% of its retirement plans offered Roth 401(k)s. Yet, the adoption of Roth 401(k)s has been relatively low, at 17% in 2023.
“But the participation rate has steadily increased from 11% in 2018,” noted Saïd Israilov, a CFP and a fiduciary financial advisor. “This slow but steady adoption over recent years indicates rising awareness and interest in tax-diversified retirement strategies.”
If you are among those who had the option to save in a Roth 401(k) but opted for the traditional plan, you may convert a traditional 401(k) into a Roth 401(k). Such 401(k) conversions are ideal for high-income earners who may not qualify for maximum Roth IRA contributions or want to benefit from higher catch-up contribution limits.
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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 age, cash available to pay current taxes and expectations of future tax rates. Given that a conversion is a major financial decision, you should seek the assistance of a qualified financial planner or tax adviser.
The primary difference between the plans is how they are taxed. With a traditional 401(k), your contributions are made on a pre-tax basis. This means contributions are deducted from your gross income, reducing your taxable income. However, withdrawals are taxed as ordinary income. 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 is when you retire. 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 2024, to contribute the maximum amount to your Roth IRA ($7,000 or $8,000 if you are 50 or older), your income must be no more than $146,000 for single filers or $230,000 for those married filing jointly. For 2025, the income caps rise to $150,000 and $236,000, respectively. Review what Roth IRAs are and how they work before deciding between the two types of plans.
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. There are three basic steps to a conversion.
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 are eligible for the conversion. Some are prohibited, such as:
- Hardship distributions
- Required Minimum Distributions (RMDs), which is when you need to withdraw money from your retirement account when you reach age 73.
- Excess contributions and excess deferrals
- Dividends from employer securities
Finally, you should calculate the added 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.
401(k) contribution limits
Traditional and Roth 401(k)s are funded by your contributions through payroll deductions. Traditional and Roth (IRAs) have much higher contribution limits than Roth IRAs, especially with the "super catch-up" contribution limits added 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, which include the following changes for 2024 and 2025.
| Header Cell - Column 0 | 2024 | 2025 |
|---|---|---|
| Employee limit | $23,000 | $23,500 |
| Combined employee and employer match | $69,000 | $70,000 |
| Catch-up contriubtion if 50 and over | $7,500 | $7,500 |
| Super catch-up for ages 60, 61, 62, 63. | N/A | $11,250 |
Plan for higher taxes in the short term with a Roth 401(k)
When you make a conversion, the assets of 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. “It can make sense when your income is relatively low and you anticipate being in a higher tax bracket in retirement,” said Jonathan Thomas, a CFP and a private wealth advisor at LVW Advisors.
Let’s take an example of how paying taxes on a conversion might save you money in retirement. Suppose you have $200,000 in your traditional 401(k) and are in the 24% tax bracket. But you expect the rate to be 32% when you retire.
With a conversion to a Roth 401(k), you will owe $48,000 in taxes. The remaining amount will then grow tax-free. Suppose it reaches $400,000 when you retire. You could then withdraw the whole amount tax-free.
But if you did not make the conversion, you would owe 32% tax on the $400,000 or $128,000. So, you would have saved $80,000 in taxes had you converted from the traditional 401(k) to a Roth 401(k).
Tip: If you have an employer match for your Roth 401(k), the match distributions will be subject to tax in the year they were added to your account.
Note that 401(k) catch-up contribution rules will change in 2026 for high earners (those making $145,000 or over). Those workers will be required to make their catch-up contributions on a Roth basis, meaning their taxable income will increase in the year they made the catch-up contribution.
Roth 401(k)s don't have RMDs
Roth 401(k)s are exempt from required minimum distributions (RMDs). This can mean lower costs for Medicare — such as for Part B and Part D premiums, which are based on income — and how much of your Social Security benefits are taxed. “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.
The bottom line. 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. And 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.
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