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Understanding a Roth in-plan conversion

Potentially tax-free retirement income.

Key takeaways

  • Convert both pretax and after-tax contributions with a Roth in-plan conversion.
  • Recognize that taxes are treated differently depending on the type of contribution made.
  • Understand that a Roth in-plan conversion is irreversible.

As of April 1, 2019, you're able to convert your eligible pretax and after-tax contributions to a Roth through a Roth in-plan conversion. This gives you the chance to build potentially tax-free retirement income beyond the pretax and Roth IRS income and contribution limits and can help you manage your taxes both now and in the future.

You have two options for converting eligible 401(k) contributions to a Roth

  • Enroll in automated conversions of future after-tax contributions.
  • Make one-time conversions of existing after-tax or pretax balances.

How taxes are generally treated

IF YOU CONVERT PRETAX CONTRIBUTIONS
You will owe taxes on your contributions as well as any investment earnings that were generated before your conversion date. Income taxes are not withheld at the time of conversion.

IF YOU CONVERT AFTER-TAX CONTRIBUTIONS
You will owe taxes on any investment earnings generated before your conversion date. Income taxes are not withheld at the time of conversion.

AT TAX TIME
You should receive a Form 1099-R from your recordkeeper showing the value of any Roth conversions you made during the previous year. You must report these amounts when you file your taxes and pay any required taxes.

Once 401(k) contributions are converted to a Roth

  • You may withdraw those converted dollars—including any related earnings—federal tax free in retirement as long as your withdrawal is taken at least five years from your first Roth contribution or conversion and after you reach age 59½, or due to disability or death.
  • If your withdrawal doesn't meet the above requirements, it will be taxed.

How a Roth in-plan conversion works

There are some additional factors to consider before converting contributions to a Roth. Roth conversions are irreversible, and they are not included in the IRS contribution limits to the 401(k) plan. Therefore, any money you convert to a Roth will be broken out separately within your account on Fidelity NetBenefits—it will not be combined with the contributions you make to the plan but will still be part of your overall 401(k) plan account balance.

There's no fee to convert and no limit to how much you can convert. However, if you're converting money that has not been taxed before, you must pay income taxes on your earnings and on any pretax contributions you convert to a Roth.

Your Fidelity Executive ServicesSM team can help you better understand how a Roth in- plan conversion could play a role, and answer key questions.

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More to explore

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

A distribution from a Roth 401(k), Roth 403 (b) and Roth 457 (b) is federally tax free and penalty free, provided the five-year aging requirement has been satisfied and one of the following conditions is met: age 59½, disability, or death.

 Fidelity Executive ServicesSM does not provide tax or legal advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

Fidelity and the Fidelity Investments logo are registered service marks of FMR LLC.

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