In-plan Roth conversions: converting without leaving the building

By Tom, CPA · Updated October 25, 2026

TL;DR: An in-plan Roth conversion moves pre-tax money in your 401(k), 403(b) or governmental 457(b) into the same plan's designated Roth account. The converted amount is taxable that year, there's no required withholding on a direct in-plan rollover, it can't be undone, and amounts withdrawn within five years can face the 10% additional tax before 59½.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

The classic Roth conversion requires leaving the plan: roll the 401(k) to an IRA, then convert. But what if you're still working, or you like your plan's cheap institutional funds, or you'd rather keep Rule of 55 access? Enter the in-plan Roth conversion (the IRS calls it an "in-plan Roth rollover"): same building, different room, new tax treatment.

It's a powerful tool for mega backdoor Roth users and for anyone wanting tax-free growth without moving accounts. It also has quirks around withholding, five-year clocks and irreversibility. Here's how it works.

CPA Warning Label: Paying the conversion tax from the plan itself shrinks what grows tax-free and can create a taxable distribution. Plan to pay the tax from outside cash.

What plans allow

A plan can offer in-plan Roth rollovers if it has a designated Roth program. The 401(k), 403(b) and governmental 457(b) plans can all have one. Under the American Taxpayer Relief Act (effective 2013) and Notice 2013-74, plans can allow conversion of any vested amounts, even "otherwise nondistributable" money such as deferrals of a participant under 59½. But it's optional: plans decide whether to offer it, which sources (deferrals, match, after-tax, rollovers) qualify, and how often you can convert.

Where to look: the summary plan description, the plan website ("Roth conversion" or "In-plan Roth rollover"), or the plan administrator. Plans that support the mega backdoor Roth often offer automatic in-plan conversion of after-tax contributions.

Tax and withholding

• Taxable amount: the value converted minus any after-tax basis. Pre-tax deferrals, matches and earnings are taxable; after-tax contributions aren't (their earnings are).
• Withholding: per the IRS designated Roth FAQs, no income tax withholding is required on an in-plan Roth direct rollover. If instead you take a distribution and roll it over within 60 days, the plan must withhold 20%.
• Estimated taxes: with no withholding, you may need to raise W-4 withholding from wages or make estimated payments to avoid an underpayment penalty.
• Reporting: the plan issues Form 1099-R (code G for direct rollover), and the taxable amount is included in income for the year of the conversion.
• No recharacterization: an in-plan Roth rollover can't be undone.

Five-year implications

Two different five-year concepts apply:

1. Qualified distribution clock: for tax-free earnings, the designated Roth account must meet a five-year period that starts January 1 of the year of your first Roth contribution (or in-plan rollover) to that plan, and you must be 59½, disabled, or deceased.
2. Recapture of the 10%: if you withdraw an amount allocable to a taxable in-plan Roth rollover within five taxable years of the rollover, the 10% additional tax generally applies to the part that was taxable, unless an exception applies (like age 59½ or separation at 55+).

If you later roll the Roth 401(k) to a Roth IRA, the Roth IRA's own five-year clock applies to qualified status. If you already have a Roth IRA open five years, that clock is already satisfied. See Roth five-year rules.

Versus converting in an IRA

The pro-rata row matters for backdoor Roth users: in-plan conversions don't touch IRA math, so you can keep a clean backdoor. See the pro-rata rule.

Illustration: a sabbatical year conversion

Illustration (assumptions): Larry, 48, takes a six-month unpaid sabbatical in 2026, so his wages fall to $60,000. He and Fran file jointly with no other income. His plan allows in-plan Roth rollovers.

• Taxable income before conversion: $60,000 − $32,200 standard deduction = $27,800.
• Room left in the 12% bracket (tops out at $100,800 of taxable income): $73,000.
• He converts $73,000 of pre-tax 401(k) money in December. Additional federal tax: 12% × $73,000 = $8,760.
• He pays it from savings and raises withholding on his final paychecks.

At a later 22% or 24% rate, the same $73,000 might have cost $16,000 to $17,500 in tax. If the Roth money grows to $150,000, it can come out tax-free in retirement and has no lifetime RMDs. If he wanted to touch that converted money before 59½, he'd wait five years (or rely on the Rule of 55) to avoid the 10%.

When an in-plan conversion makes sense

• Low-income years while still employed (sabbatical, part-time, a gap year, a business loss).
• After-tax contributions you want to convert right away to keep earnings tax-free.
• You have large pre-tax IRA balances and want to avoid pro-rata issues.
• You expect higher tax rates later, or want to reduce future RMDs.
• You plan to stay in the plan for Rule of 55 access.

When to hold off

• You'd have to pay the tax from the plan itself.
• Your income is already in a high bracket and expected to fall in retirement.
• Conversion income would cut ACA premium tax credits or trigger IRMAA.
• You're likely to need the converted money within five years and before 59½.
• The plan's investments are expensive, and an IRA conversion after leaving would be cheaper overall.

Converting after-tax money: the mega backdoor angle

If your plan allows after-tax (non-Roth) contributions beyond the $24,500 deferral limit, up to the $72,000 total annual additions limit for 2026, those contributions are already taxed. Only their earnings are taxable when converted. That's why prompt conversion matters: convert the day after contributing, and the taxable earnings are close to zero.

• Automatic conversion: some plans sweep after-tax contributions into the Roth account each pay period.
• Manual requests: other plans allow conversions monthly or quarterly. Small earnings in between are taxable when converted.
• Separate sources: plans track after-tax and pre-tax sources separately. Make sure the request converts the after-tax source, not your pre-tax deferrals by accident.

Illustration (assumptions): Fran contributes $1,500 of after-tax money each month and her plan converts it automatically. Over the year she converts $18,000 of contributions and $45 of earnings. Her taxable amount is $45. If instead she waited until December, the same contributions might have earned $600 in the meantime, all taxable on conversion.

Remember the overall limit: deferrals, employer contributions, and after-tax contributions together can't exceed $72,000 in 2026 (catch-ups are extra). Your plan's nondiscrimination testing can also limit after-tax contributions for higher earners.

Leaving the job after converting

When you separate, the Roth 401(k) can usually be rolled directly to a Roth IRA. Converted amounts keep their character, but the Roth IRA's ordering rules then apply, and your Roth IRA's own five-year clock determines whether earnings are qualified. Rolling to a Roth IRA you opened years ago usually gives the best result. Keep the plan's records of each in-plan conversion year in case you withdraw before 59½.

Execution checklist

1. Confirm the plan allows in-plan Roth rollovers and which sources qualify.
2. Decide the amount based on your bracket and ACA/IRMAA effects.
3. Submit the request (often online), choosing a direct in-plan rollover.
4. Arrange tax payments outside the plan.
5. Keep the confirmation and the Form 1099-R; note the year for five-year tracking.
6. Rebalance investments if the Roth account defaults to a different fund.