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

Key takeaways

  • Investors can roll after-tax money in a workplace plan, like a 401(k), into a Roth IRA. Though the contributions were made after-tax, earnings on after-tax contributions are treated as pre-tax money.
  • To roll after-tax money into a Roth IRA, earnings on the after-tax balance must, in most cases, also be rolled over. Depending on the plan, it may be necessary to roll over any other pre-tax money too.
  • Rolling pre-tax balances into a traditional IRA or after-tax balances into a Roth IRA is not a taxable event. But it’s important to know that for any partial rollovers of your workplace retirement plan, nontaxable amounts must be rolled over with some pre-tax amounts as well.
  • Consult a tax advisor before making a decision to make sure you’re not losing other potential tax advantages such as net unrealized appreciation for employer stock or early withdrawal exemptions.

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 the 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 When Roth contributions, along with any attributable earnings on them, are withdrawn from a plan in retirement, no taxes or penalties would be due as long as the withdrawals are qualified.1
  • In 2024, the IRS allows employees to contribute up to $23,000 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 $23,000 elective deferral limit and any profit-sharing or match offered by an employer, have a limit of $69,000 in 2024. Those who are age 50 and above can make an additional employee contribution of $7,500. 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.

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 avoid taxes on any future earnings.

Rolling over after-tax money to a Roth IRA

If you have after-tax money in your traditional 401(k), 403(b), or other workplace retirement savings account, you can roll over the original contribution amounts to a Roth IRA without paying taxes, as long as certain rules are met. (Note: Your plan's terms will determine when and how money is distributable. Please review your plan document or summary plan description for more information about disbursements from the plan.)

According to IRS guidance, you can roll pre-tax money to a traditional IRA and after-tax money to a Roth IRA and avoid creating taxable income. As with any decisions with potential tax implications, always consult a tax advisor to decide if it’s the right move for you. The IRS allows for a few different scenarios—but not all may be allowed by your plan.

In the most straightforward scenario, you would roll over the entire account balance out of the workplace plan and direct the after-tax contributions to a Roth IRA and pre-tax contributions and earnings to a traditional IRA.

The IRS treats plans that track separate source balances differently than plans that do not, allowing for withdrawals from a single source. Additionally, the IRS allows plan participants to take partial withdrawals. The catch is that your plan is not obligated to permit partial distributions or withdrawals of specific contribution types.

If the plan allows partial withdrawals and allows source-specific withdrawals, one could take a rollover of just the after-tax source balance, which includes both the after-tax contributions and all of the associated earnings. Again, the after-tax balance could go to a Roth IRA while earnings would go to a traditional IRA.

In that scenario, one could also choose to roll out only a portion of the after-tax balance. But, to roll over a partial amount of after-tax contributions, a proportional amount of associated earnings must also be rolled over.

Important note: Any partial withdrawals may affect eligibility for net unrealized appreciation treatment on appreciated employer stock held in the plan.

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

Contributions made before 1987 are treated differently than those made after 1987. Pre-1987 employee contributions may be distributed without taking a taxable disbursement of the associated earnings. If you have contributions from 1986 or before, consult your tax advisor for more information.

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, or 80%, is pre-tax.
  • $200,000, or 20%, is after-tax contributions.
  • Part of the $800,000 in total pre-tax balances is earnings attributable to the after-tax contributions—$100,000.

Another way to look at it is that Andrew has made $200,000 in after-tax contributions to the plan with $100,000 in pre-tax earnings attributable to the contributions.

We'll also assume that Andrew’s plan does allow partial withdrawals and it tracks source balances separately. So Andrew can withdraw from his after-tax source balance only.

Instead of considering the entire account and treating a $100,000 withdrawal as 80% pre-tax and 20% after-tax, Andrew would make a withdrawal from the after-tax source balance only, and that would be 66.6% after-tax and 33.3% pre-tax. This is because the after-tax source balance is composed of $200,000 in after-tax contributions and $100,000 in earnings, for a total of $300,000, so the $200,000 in after-tax contributions represents two-thirds of the total and the earnings represent the remaining one-third.

What if Andrew's plan did not track source balances separately? In that case, Andrew would need to consider the entire account. He would not be able to rollover just the after-tax balance and any partial withdrawal would need to take a proportional amount of after-tax and pre-tax assets including any after-tax contributions, pre-tax contributions, and any earnings associated with each.

Considerations when deciding on a rollover

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. However, once you reach age 73, unless you are still working at the company, you will need to start taking distributions from a 401(k). Note: As of January 1, 2024, you no longer need to take RMDs from Roth 401(k) source balances as a result of SECURE Act 2.0. The exception to this would be if you turned RMD age in 2023 and waited until 2024 to take your first RMD from your Roth 401(k). In this case, you will need to withdraw your first RMD from your Roth 401(k), but you will not need to do so thereafter.

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.

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.

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 offer loans (however, the ability to take a loan may not be impacted if you perform a partial rollover and still have assets remaining).

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.

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This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Recently enacted legislation made a number of changes to the rules regarding defined contribution, defined benefit, and/or individual retirement plans and 529 plans. Information herein may refer to or be based on certain rules in effect prior to this legislation and current rules may differ. As always, before making any decisions about your retirement planning or withdrawals, you should consult with your personal tax advisor.


For a distribution to be considered qualified, the 5-year aging requirement has to be satisfied, and you must be age 59½ or older or meet one of several exemptions (disability, qualified first-time home purchase, or death among them).

Be sure to consider all your available options and the applicable fees and features of each before moving your retirement assets.

Fidelity does not provide legal or tax 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.

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