Rolling after-tax money in a 401(k) to a Roth IRA

Workplace retirement plans like 401(k)s offer tax benefits for your retirement savings. The tax benefit you receive depends on the type of contributions you make. It's important to understand the way your distributions are taxed so you can make informed decisions about what to do with your money.

There are 3 types of contributions a participant may be able to make to a workplace retirement plan: pre-tax contributions, Roth contributions, and after-tax contributions.

• Pre-tax contributions (sometimes called pre-tax elective deferrals) are deducted from your salary before income taxes are taken out. Employer contributions to the plan, such as matching funds and profit sharing, can also be pre-tax contributions made to the plan. In retirement, all withdrawals of pre-tax contributions and any attributable earnings on them would be taxed as ordinary income.
• Roth contributions are similar, but they are made after taxes have been taken out of your salary. When Roth contributions, along with any attributable earnings on them, are withdrawn from a plan in retirement, no taxes or penalties would be due as long as the withdrawals are qualified.¹
• After-tax contributions have some attributes of both pre-tax and Roth tax types. Like Roth, after-tax contributions do not reduce your taxable income, and these contributions can be withdrawn tax-free. However, earnings on after-tax contributions are tax-deferred, so they may generate taxable income upon withdrawal.
• In 2026, the IRS allows employees to contribute up to $24,500 combined in pre-tax and Roth contributions to workplace plans. The IRS also allows for after-tax employee contributions to a plan. These contributions, combined with the $24,500 elective deferral limit and any profit-sharing or match offered by an employer, have a limit of $72,000 in 2026. Those who are age 50 and above can make an additional employee contribution of up to $8,000. For those between ages 60 and 63, that additional employee contribution increases to a max of $11,250 as of 2026. In retirement, withdrawals of after-tax contributions would be tax-free, but any earnings on the after-tax contributions would be taxed as ordinary income. If the plan allows, the after-tax contributions may be converted to Roth within the plan before any earnings accrue. Some plans may offer automatic conversions. Note: If you had FICA wages above $150,000 in 2025, your catch-up contributions must be made as Roth.

Taxes on earnings from after-tax contributions

After-tax contributions to a 401(k) or other workplace retirement plan get a different tax treatment than their earnings. Since you've already paid taxes on the contributions, those withdrawals are tax-free in retirement. But the IRS considers the earnings to be pre-tax—so they would be treated as pre-tax and you would owe income tax when you withdraw the earnings from the plan.

Earnings in Roth IRAs, however, aren't subject to income tax as long as all withdrawals from the account are qualified withdrawals.¹ So rolling after-tax contributions from a workplace plan to a Roth IRA means you can potentially avoid taxes on any future earnings.

Rolling over after-tax money to a Roth IRA

If you have after-tax money in your 401(k), 403(b), or other workplace plan, you can roll the after-tax contributions into a Roth IRA without paying taxes on those contributions. You can also direct any pre-tax amounts, including earnings on those after-tax contributions, into a traditional IRA. 

But even though you can separate the money when it’s rolled over, you may not be able to take it out of the plan separately in the first place. Your plan’s rules determine if you can take certain actions piecemeal, such as a partial withdrawal or a withdrawal from a specific source. The plan must permit the distribution before you can roll it to an IRA. Check your plan documents for details. 

According to IRS rules:

• After-tax contributions can be rolled to a Roth IRA.
• Pre-tax amounts, including earnings, can be rolled to a traditional IRA.
• You are allowed to split one distribution across different IRA types based on tax character.

Plan rules determine what you can withdraw:

• The plan may or may not allow partial withdrawals.
• The plan may or may not allow withdrawals from specific sources (such as the after-tax source only).
• If the plan does not track sources separately, or does not allow source-specific withdrawals, any partial distribution generally must include a proportional mix of pre-tax and after-tax amounts. You can still split the amounts appropriately once they reach the IRAs, but you may not be able to withdraw only the after-tax contributions from the plan. 

Common scenarios:

1. Full rollover of the entire plan balance. You roll over the entire account. After-tax contributions go to a Roth IRA, and pre-tax balances and earnings go to a traditional IRA. No current tax is owed if the rollover is direct.
2. Partial rollover when the plan allows source-specific withdrawals. You can withdraw only the after-tax source. The after-tax contributions can be rolled to a Roth IRA, and the earnings can be rolled to a traditional IRA.

Important: Partial withdrawals may affect eligibility for net unrealized appreciation (NUA) treatment on employer stock held in the plan.

Read Fidelity Viewpoints: Make the most of company stock in your 401(k)

Special rule for older contributions: After-tax employee contributions made before 1987 may be withdrawn without triggering a taxable distribution of the associated earnings. Consult a tax professional if this applies to you.

Here’s how it works

Let's look at a hypothetical example of a 401(k) rollover to a Roth IRA.

Let's assume Andrew is age 60, retired, and has $1 million in his 401(k):

• $800,000 is pre-tax.
• $200,000 is after-tax contributions.
• $100,000 of the pre-tax balance represents earnings on the after-tax contributions.

If the plan allows source-specific withdrawals, Andrew can withdraw only the after-tax source ($300,000 total). He can roll the $200,000 after-tax contributions to a Roth IRA and the $100,000 earnings to a traditional IRA.

If the plan does not permit source-specific withdrawals, any partial withdrawal must include a proportional mix of all account types. He can still roll after-tax contributions to a Roth IRA and pre-tax amounts to a traditional IRA, but he can’t withdraw only the after-tax contributions from the plan.

Considerations when deciding on a rollover

Some employers offer a Roth 401(k) option and also allow participants to convert after-tax contributions into an in-plan Roth account, so check with your employer to see if it is an option. In some cases, it may make sense to roll over your after-tax contributions to a Roth inside your plan rather than outside. Know that the benefits of a Roth IRA listed here—including investment choices and potentially greater flexibility—may not apply to your company plan's Roth 401(k) option.

Investment choices. A Roth IRA may provide more investment choices than are typically available in an employer's plan, although an employer's plan may also offer institutionally priced investments and/or customized plan options not available in an IRA.

Required distributions. There are no required minimum distributions (RMDs) from a Roth IRA during your lifetime.

Flexibility. Once the money is in a Roth IRA, you may have greater flexibility in terms of withdrawals before retirement. Unlike employer-sponsored retirement plans, Roth IRAs allow (within limits) for penalty-free withdrawals for a first-time home purchase or qualified education expenses like going to graduate school.¹ After certain requirements are met, converted balances within Roth IRAs may be withdrawn without taxes or penalties for other purposes as well. Finally, Roth IRAs are also not subject to various restrictions that plan sponsors sometimes place on workplace plans. Note that if you open a new Roth IRA with your rollover of funds, you must wait 5 years from the start of the tax year of the conversion in addition to meeting other conditions, such as turning age 59½, among others, in order to make tax- and penalty-free qualified Roth IRA withdrawals. To learn more, read Viewpoints: What to know about the Roth IRA 5-year aging rule.

Please keep in mind some potential benefits of leaving assets in your 401(k):

• 401(k)s offer institutional pricing that is not offered in IRAs.
• 401(k)s are ERISA (which stands for Employee Retirement Income Security Act) plans and offer unlimited protection from creditors under federal law. Protection for IRA assets is mostly state dependent.
• 401(k)s may offer loans.
• If you roll over company stock to a Roth IRA, you will no longer able to take advantage of net unrealized appreciation (NUA). You would need to strategically roll the money out of the plan, with the company stock going to a brokerage account, to take advantage of NUA. To learn more about NUA, read Viewpoints: Make the most of company stock in your 401(k).

Weigh all options

Deciding whether to roll over your 401(k) isn't necessarily a straightforward decision. This is why we suggest that investors carefully assess their situation, consider all available options and the applicable fees and features of each before moving retirement assets, and check with a tax advisor to help make an informed decision.