What you can do. Roll over a traditional 401(k) into a traditional IRA, tax-free. Roll over a Roth 401(k) into a Roth IRA, tax-free. Roll over a traditional 401(k) into a Roth IRA—this would be considered a “Roth conversion,” so you’d owe taxes.

Fortunately, the definitive answer is “yes.” You can roll your existing 401(k) into a Roth IRA instead of a traditional IRA. Choosing to do so just adds a few additional steps to the process. Whenever you leave your job, you have a decision to make with your 401k plan.

Can a 401k be rolled over into a Roth IRA?

Roth IRA Rollover Rules From 401k. As a reminder, you must generally be separated from your employer to roll your 401k into a Roth IRA. However, some employers do permit an in-service rollover, where you can do the rollover while still employed. It’s permitted by the IRS, but not all employers participate.

When does the clock start ticking on a Roth 401k?

The clock starts ticking January 1 st of the year you make your first contribution. That seems fairly straightforward. However, what most people might not realize is that when you rollover a Roth 401(k) to a Roth IRA, the clock is reset. And in this case, it’s the timing of the Roth IRA that counts.

Can a Roth IRA rollover be an excess contribution?

It often takes a bit of effort to explain to the Roth IRA custodian how this came to be an excess contribution instead of an eligible rollover contribution so that they will actually perform a return of contribution.

Can a person withdraw from a Roth 401k without penalty?

While this rule usually holds steadfast, there are some exceptions where even non-qualified distributions can be tax-free. For example, if you become permanently disabled, you can withdraw from your Roth IRA before age 59.5 without a penalty. The five-year rule also applies to funds held in a Roth 401(k) account.