Ask the Hammer – Converting to a Roth 401(k)

Key Takeaways

• Verify your plan actually offers both a Roth 401(k) option AND in-plan conversion capability—these are separate features; many plans have one but not the other
• Before age 59.5, you're limited in moving money out of your plan, but at 59.5 you gain access to both in-plan conversions and in-service distributions to external Roth IRAs
• Spread conversions over multiple years rather than converting a lump sum, especially if your retirement income will include Social Security, pensions, and required minimum distributions at age 72
• Place your highest-appreciation investments inside the Roth to maximize tax-free growth, while keeping lower-growth assets in traditional accounts
• Consider downstream tax consequences before converting—Roth conversions can increase income and potentially reduce student aid eligibility or education credits for college-bound children