Rolling Traditional 401k to Roth IRA: Step-by-Step Guide

Picture this: you’re contemplating your next career move, or maybe you’re simply rethinking your long-term financial plans. In either case, the money sitting in your traditional 401(k) deserves careful attention—and perhaps a new direction. For many, the prospect of rolling those pre-tax retirement savings into a Roth IRA is more than just a tax maneuver; it’s a strategic leap toward future flexibility, potential tax-free growth, and greater control over withdrawals in retirement.

However, making this move isn’t as straightforward as filling out a single form. Questions about tax consequences, eligibility, timing, and the fine print of IRS rules can stall even the most seasoned savers. Should you act now or wait for a lower-income year? How does the five-year rule affect your plans? And most importantly, how can you execute a rollover without triggering avoidable penalties?

This article breaks down the entire process of rolling a traditional 401(k) into a Roth IRA, step by step. Whether you’re looking for clarity, confidence, or just a practical checklist, you’ll find clear guidance to help you navigate each decision and requirement along the way. Let’s get started on the path to a more tax-efficient retirement.

Step 1: Determine if a Roth Conversion Aligns with Your Retirement Goals

Deciding to roll pre-tax savings into a Roth IRA is more than ticking a box—it’s a strategic choice that can reshape your tax picture in retirement. Before you dive in, consider factors like your current versus future tax rates, how a Roth fits your timeline, and the extra flexibility you’ll gain down the road.

Quick Comparison
Pros:

Tax-free growth and withdrawals in retirement
No required minimum distributions (RMDs)
Tax diversification to hedge against future rate hikes

Cons:

Upfront tax bill on the converted amount
Five-year holding rule for converted funds
Potential impact on income-sensitive programs (e.g., IRMAA)

Evaluate Your Current vs. Future Tax Bracket

A core reason to convert is locking in today’s tax rate if you expect to be in a higher bracket later. For example, a $50,000 conversion taxed at 22% now costs you $11,000. If you waited and paid 32% in retirement, you’d owe $16,000—so you’d save $5,000 by acting sooner. Run your own numbers before deciding whether a conversion adds up over the long haul.

Assess Income Eligibility and Contribution Limits

Here’s some good news: there’s no MAGI cap on rollovers. You can convert any amount from a traditional 401(k) into a Roth IRA, even if high earnings disqualify you from regular contributions. That said, remember the annual Roth contribution limits—$7,000 for 2024 (or $8,000 if you’re age 50 or older)—if you plan to add new funds on top of your rollover.

Align With Your Retirement Timeline

Timing is crucial. Converted dollars must remain in your Roth IRA for five years before earnings can be withdrawn penalty-free. If you need cash sooner, a large conversion could backfire. Conversely, if you’re at least five years away from tapping those assets, a Roth conversion sets you up for tax-free income when you retire.

Step 2: Review Your Employer’s 401(k) Plan Rules and Options

Summit’s 401(k) plans overview provides a solid starting point, but every employer-sponsored plan has its own wrinkle. Before initiating a rollover, you’ll want to get clear on your plan’s specific provisions, fees, and any restrictions—details that you can only find in your plan document or by talking to your HR team.

Reach out early to your plan administrator to understand eligibility, conversion windows, and potential costs. This due diligence will help you pick the smartest path forward and avoid unexpected hurdles when you’re ready to move funds.

Understand All Rollover Destinations

When you step away from your current employer, most 401(k) plans offer four main paths:

Leave the account where it is: Keep your money invested tax-deferred, but you may lose ongoing support and could face higher fees.
Roll over to a new employer’s plan: Transfer your balance directly into your new job’s 401(k) to maintain a single, consolidated account.
Roll over to an IRA: Move assets into a traditional or Roth IRA for wider investment choices and more control over withdrawals.
Cash out: Take a lump‐sum distribution, knowing you’ll owe income tax on the full amount plus a 10% penalty if you’re under age 59½.

Each option has pros and cons—whether it’s the broader menus and tax benefits of IRAs or the simplicity and potential cost savings of staying in a 401(k).

Check for In-Plan Roth Conversion Features

Some plans let you convert pretax contributions directly into a Roth 401(k) without rolling out to an IRA. An in-plan conversion can feel seamless—no new account setup or trustee-to-trustee transfers—and it keeps assets in one spot. Just remember that Roth 401(k)s still require RMDs in retirement and may offer fewer investment options than a standalone Roth IRA. Weigh the convenience of an in-plan switch against the long-term flexibility and tax-free withdrawals a Roth IRA provides.

Identify Required Forms and Deadlines

To kick off a rollover, you’ll typically need to:

Request a distribution or rollover form from your HR or plan administrator.
Indicate whether you want a direct rollover (trustee-to-trustee) or an indirect rollover (check made out to you).
Observe the 60-day deadline for completing an indirect rollover to avoid taxes and penalties.
Check for any blackout periods during which your plan may pause transactions.

Being proactive about gathering, completing, and submitting these forms—well ahead of any deadlines—will help ensure your rollover stays on track and penalty-free.

Step 3: Learn the IRS Rollover Rules and Avoid Penalties

Rolling over a traditional 401(k) to a Roth IRA isn’t just a matter of moving money—it’s about following IRS rules to the letter. Miss a deadline or misinterpret a guideline, and you could trigger taxes or penalties you weren’t expecting. Below, we’ll walk through the key rollover rules, clarify common misconceptions, and show you how to steer clear of any unnecessary costs.

Before you take any action, it’s a good idea to review IRS Publication 590-A, which covers the rules for IRA contributions and rollovers in detail. Knowing where the IRS draws its lines will help you plan your rollover confidently and keep every dollar working for your retirement.

60-Day Rollover Requirement and Exceptions

The IRS generally requires that you complete an indirect rollover within 60 days of receiving a distribution. As the publication states, “Generally, a rollover must be completed by the 60th day after the distribution.” If you miss that window, the distribution becomes taxable income and may even be subject to an early‐withdrawal penalty.

That said, there are a few relief provisions worth noting:

Automatic waivers: In cases of severe hardship or natural disasters, the IRS sometimes issues blanket extensions for affected taxpayers.
Self-certification: Under certain circumstances, you can sign a statement affirming eligibility for a waiver if you missed the deadline for reasons beyond your control (for example, a serious medical emergency).

Always document any exception you claim—save notices of disaster declarations, medical records, or other proof—so you can back up your self-certification if the IRS comes calling.

One-Rollover-Per-Year Rule Clarification

Many people worry that the IRS limits them to one rollover each year, but that restriction applies only to IRA → IRA rollovers. You can roll money from a 401(k) to an IRA—including a Roth IRA—as often as you like, without triggering the one-per-12-months limit.

In practice, this means you could do a series of 401(k) → Roth IRA conversions in the same calendar year without running afoul of rollover caps. Just be sure each transaction follows the proper direct or indirect rollover procedures so you don’t accidentally convert one rollover into a taxable distribution.

Avoiding the 10% Early Withdrawal Penalty

A direct rollover—sometimes called a trustee-to-trustee transfer—is the safest way to avoid surprises. When your plan administrator sends funds directly to your Roth IRA custodian, the IRS views the transfer as a nontaxable event, and no 10% early‐withdrawal penalty applies, even if you’re under age 59½.

If you choose an indirect rollover (where the check comes to you), you still have that 60-day window to deposit the full amount—not just the net after withholding—into your Roth IRA. As long as you meet the deadline and deposit the gross distribution, you’ll escape both income tax and the 10% penalty.

Keeping these rollover rules in mind will help you execute your traditional 401(k) to Roth IRA move smoothly—and without unwelcome tax consequences.

Step 4: Calculate Your Tax Liability and Plan to Minimize the Hit

Converting your traditional 401(k) balance into a Roth IRA can feel a bit like signing up for a big tax bill today in exchange for tax‐free withdrawals down the road. To make sure the trade‐off works in your favor, you’ll want to estimate how much additional income tax you’ll owe in the conversion year—and then explore strategies to keep that payment as manageable as possible.

Estimating Additional Taxable Income

Because traditional 401(k) contributions and earnings haven’t been taxed yet, the full amount you convert becomes part of your taxable income. In other words:

Tax Liability = Conversion Amount × Marginal Tax Rate

To see how it plays out, imagine you earn $80,000 in W-2 wages and decide to convert $20,000 from your 401(k). Your new taxable income will be $100,000. If your marginal bracket is 22%, you’d owe roughly $4,400 extra in federal tax for that year ($20,000 × 0.22). State income tax may apply as well, so don’t forget to factor your state rate into the calculation.

By running a few scenarios—small, medium, and full‐balance conversions—you can gauge where you’ll land in the tax brackets and decide whether to convert all at once or spread it out.

Using After-Tax Contributions to Lower Taxes

If you ever made nondeductible (after-tax) contributions to your 401(k), those dollars have already been taxed. You can funnel that basis directly into your Roth IRA without triggering another tax event. Here’s a quick example:

Total 401(k) balance: $100,000
After-tax contributions: $10,000
Pretax balance: $90,000

By separating the $10,000 in after-tax contributions from the taxable $90,000 pretax portion, you’ll only owe tax on the $90,000 when converting to a Roth. Effectively, this strategy lets you “subtract” your basis from the conversion calculation—lightening your tax load in the conversion year.

Timing Conversions in Low-Income Years

One of the simplest levers you can pull is timing. If you anticipate a dip in income—say, a sabbatical, business startup year, or early retirement—you could convert more of your 401(k) when your overall taxable income is lower. That may keep you in a lower bracket and save thousands in taxes.

You might also consider splitting your rollover into partial conversions over consecutive years. For instance:

Year 1: Convert enough to fill the top of the 22% bracket
Year 2: Convert another slice before you hit the 24% bracket

This “laddered” approach smooths the tax bite, prevents bracket creep, and can mesh nicely with years when you have fewer deductions or a reduced salary. Just remember that each conversion still needs to follow the IRS’s rollover rules and be reported on your tax return—so track every chunk carefully.

By estimating your liability, leveraging after-tax contributions, and choosing the right timing, you’ll keep more of your money working toward growth instead of the IRS. In the next step, we’ll look at how Medicare’s IRMAA surcharges can be affected by a big Roth conversion—so you’re fully prepared for the ripple effects beyond your tax return.

Step 5: Consider the Impact on Medicare Premiums (IRMAA)

When you convert a chunk of your 401(k) to a Roth IRA, you’re bumping up your taxable income—and that can ripple into your future Medicare premiums. The Social Security Administration reviews your modified adjusted gross income (MAGI) from two years prior to set your Income-Related Monthly Adjustment Amount (IRMAA). In practical terms, a big Roth conversion in 2025 shows up on your 2027 Medicare Part B and D bills. Before you pull the trigger, it pays to understand how this works and what options you have if your premiums spike.

How a Roth Conversion Raises Your MAGI

Your MAGI starts with your adjusted gross income (AGI) on Form 1040, then adds back items like tax-exempt interest. A Roth conversion is treated as ordinary income, so the full amount increases your AGI—and by extension, your MAGI. Because IRMAA uses a two-year look-back, a 2025 conversion will affect the premiums you pay in 2027. If you’re already near one of the IRMAA thresholds, a large conversion could push you into a higher surcharge bracket, adding tens or even hundreds of dollars to your monthly outlay.

2025 IRMAA Thresholds and Surcharges

The following income brackets trigger surcharges in 2027, based on your 2025 MAGI (for single and married filers filing jointly):

$106,000 or less / $212,000 or less: No IRMAA surcharge
$106,001–$133,000 / $212,001–$266,000: Part B surcharge of $74.00; Part D surcharge of $13.70
$133,001–$160,000 / $266,001–$320,000: Part B $207.90; Part D $13.70
$160,001–$500,000 / $320,001–$750,000: Part B $334.70; Part D $37.00
Above $500,000 / $750,000: Part B $443.90; Part D $85.80

For full details on how these figures translate into your out-of-pocket costs, check the official Medicare Part B cost chart.

Appealing an IRMAA Determination

If a one-time event—say early retirement, a business downturn, or another sudden income drop—skews your MAGI, you don’t have to swallow a higher IRMAA surcharge forever. You can appeal:

Complete Form SSA-44 (Medicare Income-Related Monthly Adjustment Amount – Life-Changing Event).
Attach supporting documents, such as termination letters, death certificates, or tax transcripts.
Submit to your local Social Security office or online via your mySocialSecurity account.

Once the SSA approves your appeal, premiums can be adjusted prospectively, usually within a month or two. Keep in mind, though: IRMAA appeals must be based on a qualifying life event that’s documented and verifiable.

By factoring in IRMAA before your Roth conversion, you’ll avoid surprise spikes in your Medicare bills—and can plan any necessary appeals in plenty of time.

Step 6: Open a Roth IRA Account with Your Custodian

Choosing a trusted custodian for your Roth IRA is a decision that will shape your experience as an investor. The right custodian balances low costs, user-friendly tools, and reliable customer support—so your rollover funds land in capable hands. Before you launch the application, spend a bit of time comparing providers and getting your paperwork in order. A smooth start lays the groundwork for efficient investing and makes future portfolio moves feel effortless.

Comparing Custodians by Fees and Offerings

When scouting custodians, look beyond the flashy marketing and focus on core metrics that affect your bottom line:

Commissions and Trading Fees: Does the custodian charge per trade? What’s the fee for buying or selling stocks, ETFs, and mutual funds?
Expense Ratios and Fund Costs: Review the average expense ratio of the funds in their platform. Even small differences can compound over time.
Investment Selection: Ensure they offer the asset classes you need—index funds, target-date funds, bonds, or alternative investments.
Account Fees: Watch out for annual maintenance fees, inactivity charges, or minimum-balance penalties.
Customer Service and Tools: Evaluate the quality of online platforms, mobile apps, educational resources, and live support channels.

By weighing each custodian’s strengths and weaknesses, you’ll land on a provider that aligns with your strategy and budget.

Step-by-Step Account Opening Process

Once you’ve picked a custodian, the account setup usually follows a familiar sequence:

Visit the Custodian’s Website or Office
Navigate to the Roth IRA application page or request paper forms if you prefer in-person service.
Complete the Online Application
Enter your contact information, employment details, and account preferences (e.g., Roth IRA). Most platforms guide you with field-by-field prompts.
Review and Sign Disclosures
Read the fine print on fees, account agreements, and privacy policies. Check the electronic signature box or sign the paper form.
Fund the Account
Transfer your rollover instructions or initial contribution. Some custodians set a funding minimum (often $0–$1,000), while others let you begin with any amount.
Verify and Activate
Expect a confirmation email or welcome package within a few business days. Log in to verify your account, set security preferences, and link external bank accounts.

Most custodians fully process new Roth IRAs within one to two weeks—and faster if you opt for e-signatures and electronic funding.

Gathering Required Personal Information

To avoid delays, have these details at your fingertips before you start:

Social Security Number and Date of Birth
Contact Information (address, phone, email)
Employment Status and Employer Name
Beneficiary Names, Social Security Numbers, and Relationship to You
Bank Account and Routing Numbers (for electronic transfers)
Rollover Instructions (plan name, account number, and dollar amount)

With this information organized, you’ll breeze through the application and pivot quickly to making investment choices. A well-prepared opening process sets you up to allocate assets effectively and stay on track toward your long-term goals.

Step 7: Initiate a Direct Rollover (Trustee-to-Trustee Transfer)

Opting for a direct rollover is the safest route: your 401(k) assets move straight into your Roth IRA, you dodge the 60-day deadline and mandatory withholding, and you eliminate the risk of accidental distributions. Here’s how to get the ball rolling.

Requesting a Direct Rollover from Your Plan Administrator

Begin by notifying your HR department or plan administrator that you want a trustee-to-trustee transfer. A quick email often does the trick. You could say:

“Hello [Name],
I’d like to initiate a direct rollover of $[amount] from my traditional 401(k), Plan ID: [ID number], to my Roth IRA at [Custodian Name], Account #[account number]. Please send the funds directly to [Custodian Name] at [custodian address]. Let me know if you need any additional information or forms.
Thank you,
[Your Name]”

Feel free to tweak this sample so it fits your company’s communication style.

Completing and Submitting Rollover Forms

Most plans will ask you to fill out a specific rollover form. When you complete it, be prepared to supply:

The dollar amount—or full balance—you want to move
Your Roth IRA custodian’s legal name and address
The receiving account number at the custodian
Your plan’s official name and ID

Before you sign, double-check each entry. A single typo in your account number or plan ID can stall the transfer for days or even weeks. If terminology on the form trips you up, consult your administrator for clarification.

Confirming No Tax Withholding

A trustee-to-trustee transfer should arrive in your Roth IRA intact, with zero tax withheld. Before submitting your form, verify:

The rollover check is payable to your Roth IRA custodian—never to you personally
There’s no federal or state tax withholding deducted
The full distribution amount is scheduled for transfer

Once your custodian receives the funds, look for their confirmation—typically an email notification or statement entry. Save that documentation for your records. With your direct rollover complete, every dollar lands in your Roth IRA exactly as intended, keeping you compliant and penalty-free.

Step 8: Manage Indirect Rollovers When Necessary

Sometimes a direct rollover isn’t an option—your plan administrator may only issue a check to you, or you might prefer to take temporary control of the funds. In these cases, you’re doing an indirect rollover, which comes with extra steps to keep the IRS happy. With careful planning, you can still avoid taxes and penalties, but you’ll need to watch your calendar and your paperwork more closely.

Understanding Indirect Rollover Mechanics

An indirect rollover occurs when your 401(k) distribution check is made payable to you, rather than directly to your Roth IRA custodian. You then have 60 days from the date you receive the funds to deposit them into your Roth IRA. If you miss that window, the IRS treats the distribution as taxable income—and you could also face a 10% early‐withdrawal penalty. For full details on how indirect rollovers work, see Investopedia’s guide on indirect rollovers.

Handling Withholding and Replacement Funds

By law, your plan administrator must withhold 20% of the distribution for federal income tax. If you deposit only the net amount you receive, the IRS considers the withheld portion a distribution, and you’ll owe tax (and possibly penalties) on it. To complete a tax‐free rollover, you must:

Deposit 100% of the distributed amount—including the 20% that was withheld—into your Roth IRA within the 60-day window.
Replace the withheld funds from other savings or a personal account when you make the rollover deposit.

When you file your tax return, the 20% withheld is applied against any tax you owe, and you’ll get a credit or refund for that portion if your total withholding exceeds your liability.

Avoiding Common Pitfalls and Deadlines

Indirect rollovers carry more risk than trustee‐to‐trustee transfers, so keep these best practices in mind:

Mark your calendar. Set reminders for the 60th day after distribution and aim to deposit funds well before then.
Document everything. Retain a copy of the distribution check, deposit slip, and any correspondence with your plan administrator or custodian.
Don’t mix rollovers. If you’ve done another IRA‐to‐IRA rollover in the last 12 months, make sure you’re not bumping into the one‐per‐year rule for IRAs—though 401(k) to IRA rollovers themselves aren’t subject to this limit.
Confirm the net deposit. Once your custodian posts the deposit, verify that the full gross amount was recorded. If it wasn’t, contact both the custodian and your plan administrator immediately.

By staying organized and proactive, you can turn an indirect rollover into a smooth, penalty-free step on your path to a Roth IRA.

Step 9: Allocate Investments and Maintain Your Portfolio

Once your assets land in a Roth IRA, the next critical phase is deciding how to invest them—and then keeping that strategy on track over time. A thoughtful allocation plan balances growth potential with risk management, and periodic check-ins help prevent market swings from shifting your portfolio into unintended territory. Below, we’ll cover how to set up your target asset mix, diversify within your Roth IRA, and establish a rebalancing routine that keeps you aligned with your long-term goals.

Setting a Target Asset Mix

Your asset mix is the backbone of your retirement strategy. It determines how much of your portfolio goes into stocks, bonds, and other vehicles based on factors such as age, risk tolerance, and time horizon. Here are two common approaches:

Age-based glide path: A simple rule of thumb is to subtract your age from 100 (or 110) to find the percentage of equities in your portfolio, allocating the remainder to fixed income. For example, at age 40, you might hold 60% in stocks and 40% in bonds.
Risk-based customization: If you’re comfortable with higher volatility, you could tilt a few percentage points toward equities—or dial back to more conservative holdings if you prefer steadier returns.

In either case, write down your target mix, for instance:

Equities: 60%  
Bonds:    30%  
Alternatives or Cash: 10%

Having this roadmap lets you measure performance against your plan and avoid emotional swings when markets move.

Diversification Strategies Within a Roth IRA

Diversification spreads risk by holding a variety of investments that don’t all move in the same direction. Within your Roth IRA, consider combining:

Domestic and international equities: U.S. large-cap, small-cap, and foreign stock funds
Fixed income: U.S. Treasury, municipal, or corporate bond funds
Real assets and alternatives: REITs, commodities, or low-volatility “hedge” strategies

You can build this mix with low-cost index or exchange-traded funds to keep expenses down. The broader your exposure, the more you smooth out individual market or sector downturns.

Scheduling Periodic Rebalancing

Market fluctuations can shift your asset allocation over time, pushing you away from your target mix. Rebalancing brings you back into alignment:

Set a review cadence: Common intervals are annual or semi-annual check-ins.
Define drift thresholds: For example, rebalance when any single asset class moves more than 5% above or below its target.
Execute trades systematically: Sell portions of the overweighted assets and buy into those that have lagged.

Some custodians offer automated rebalancing tools, while others require manual trades. Whichever route you choose, consistency is key—regular rebalancing helps capture gains and control risk without relying on market timing.

By crafting a clear allocation plan and sticking to a disciplined rebalancing schedule, you’ll keep your Roth IRA on the path you designed. In the next section, we’ll explore how the Roth IRA five-year rule affects your ability to tap these investments down the road.

Step 10: Monitor the Five-Year Rule and Withdrawal Requirements

Before tapping into your Roth IRA, it’s essential to understand when withdrawals are truly penalty-free and tax-free. Although you can always pull out your original contributions (the dollars you funded with after-tax income) at any time, conversions and earnings are subject to stricter timing rules. Knowing the five-year timelines and withdrawal conditions will help you avoid unexpected taxes or the 10% early-withdrawal penalty.

Understanding the Roth IRA Five-Year Period

The five-year rule governs when earnings and converted funds become qualified distributions. There are actually two clocks to watch:

Contribution clock: Begins January 1 of the tax year you first funded any Roth IRA.
Conversion clock: Starts January 1 of the tax year you made your first Roth conversion.

Converted amounts and subsequent earnings must sit in the Roth IRA for at least five tax years before you can withdraw them completely tax- and penalty-free. If you combined multiple conversions into one account, the earliest conversion date applies across the board.

Penalties for Early Withdrawal of Earnings or Conversions

Pulling out more than your original contributions before meeting the five-year rule—or before age 59½—can trigger both:

Ordinary income tax on the earnings portion of your withdrawal
10% early-withdrawal penalty on the taxable amount

Even if you’re over age 59½, accessing converted funds that haven’t aged five years can still incur the 10% penalty on those dollars.

Exceptions and Qualified Distributions

The IRS recognizes certain exceptions that let you avoid the 10% penalty entirely, even if the five-year period isn’t up:

You’ve reached age 59½
You become totally and permanently disabled
You use up to $10,000 toward a first-time home purchase
You withdraw to pay qualified unreimbursed medical expenses

Keep solid documentation—like settlement statements, medical bills, or doctor’s certificates—to substantiate any exception. Note that while these situations waive the penalty, earnings still must satisfy the five-year rule (and may be taxable if they don’t).

Step 11: Keep Detailed Records and Plan Future Contributions

Rolling your traditional 401(k) into a Roth IRA kicks off a new planning phase: after the transfer, you’ll want to maintain meticulous records and map out any future IRA contributions. Good record-keeping helps you comply with IRS rules, eases tax reporting, and sets the stage for smooth backdoor conversions if your income grows beyond Roth limits. Below, we cover key steps to keep everything organized—and to make the most of your IRA going forward.

Documenting Your Rollover for Tax Purposes

From the moment your 401(k) assets hit your Roth IRA, save all related statements and forms. That includes:

Form 1099-R: Issued by your 401(k) plan administrator, this shows the gross distribution and any taxes withheld.
Form 5498: Sent by your IRA custodian, it details rollover contributions and fair market values at year-end.
Plan and transfer confirmations: Emails or letters confirming trustee-to-trustee transfers (especially important if you did an indirect rollover).

Store these documents—both paper and digital copies—in a dedicated tax folder. If you use tax-preparation software, upload or index the scanned forms so you can pull them up instantly when you file. Good organization prevents last-minute scrambles and makes audit-time far less stressful.

Reporting the Conversion on Your Tax Return

When it’s time to file, you’ll report your Roth conversion on IRS Form 8606, “Nondeductible IRAs.” In most cases:

Part I captures any nondeductible traditional IRA contributions and the total basis in your IRAs.
Part II covers the Roth conversion amount for the tax year. It calculates the taxable portion of your rollover.

Because your entire traditional 401(k) conversion is treated as ordinary income (minus any after-tax basis you pulled out), Form 8606 ensures the IRS sees that you paid tax on the correct dollar amount. Attach Page 1 of Form 8606 to your Form 1040. The IRS uses this to track your Roth basis and confirm that future withdrawals follow the five-year rule.

Planning Annual IRA Contributions and Backdoor Conversions

Even after a large rollover, you can still contribute up to the annual IRA limit—$7,000 for 2024 (or $8,000 if you’re age 50 or older). If your modified adjusted gross income (MAGI) exceeds Roth IRA contribution thresholds, consider a backdoor Roth strategy:

Make a nondeductible contribution to a traditional IRA.
Convert that contribution immediately to your Roth IRA, usually incurring minimal tax because no earnings have accrued.
File Form 8606 to record both the nondeductible deposit and the Roth conversion.

Keep a running tally of your IRA basis to avoid double taxation. Each year’s contributions and conversions should be logged in your records alongside rollover documents. That way, you’ll have a clear view of your tax-paid principal versus earnings—information you’ll need before you tap your Roth IRA down the line.

By maintaining comprehensive records and planning your annual contributions, you’ll stay on top of IRS requirements and make every dollar count. With this final step checked off, you’re well-positioned to enjoy the tax-free growth and withdrawal flexibility that a Roth IRA offers.

Moving Forward with Your Rollover Plan

You’ve now walked through every crucial step—from weighing today’s tax rates against tomorrow’s, to navigating IRS rollover rules, to setting up your Roth IRA and fine-tuning your investment mix. With a clear game plan in hand, you can confidently convert your traditional 401(k) into a Roth IRA and position your nest egg for tax-free growth and flexible withdrawals down the road.

As you move forward, remember to:

Revisit your long-term goals and confirm that a Roth conversion still aligns with your retirement strategy.
Follow your plan’s paperwork deadlines and choose a direct rollover whenever possible.
Track your taxable income, IRMAA implications, and the five-year holding requirement for converted funds.
Keep detailed records—1099-R’s, 5498’s, and rollover confirmations—to simplify tax filing and future withdrawals.
Maintain your portfolio allocation and rebalance regularly to stay on target.

Executing a successful rollover is as much about preparation as it is about paperwork. If you’d like personalized guidance or a second set of eyes on your strategy, our team is ready to help. Visit the Summit Consulting Group, LLC homepage to explore our retirement plan administration and fiduciary services—so you can focus on your next career move, knowing your retirement savings are in expert hands.