Skip to navigationSkip to main contentSkip to right columnADVERTISEMENTMark HenricksFri, June 26, 2026 at 11:00 AM GMT+2 6 min readSmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below.Transferring some of your retirement savings from a tax-deferred account like a 401(k) to a Roth IRA can help you reduce or possibly avoid required minimum distributions (RMDs) and income taxes later on. It can also be beneficial if you want to leave tax-free savings to your heirs. A Roth conversion can therefore provide you with some flexibility when tax planning your finances in retirement.However, you can't escape paying income taxes on your tax-deferred savings entirely, and converting 25% of a large 401(k) could lead to a sizable tax bill you'll have to pay right now. You may want to consider a conversion strategy based on keeping you from entering a higher marginal income tax bracket rather than converting a set percentage, although other timing factors may come into play.Here are some factors to think about. You can also get matched with a financial advisor for free if you need help developing a 401(k) conversion plan that will balance present and future tax consequences.Roth Conversion RulesBecause Roth accounts are not subject to the required minimum distribution (RMD) rules that apply to 401(k) accounts, a retirement saver may want to consider converting funds from a 401(k) to a Roth IRA. Under RMD rules, funds left in a 401(k) or similar tax-deferred account have to be withdrawn on a strict schedule starting at age 73 or 75, depending on your birth year.Unlike Roth withdrawals, which are usually tax-free, 401(k) withdrawals are treated as taxable income. As a result, taxable RMDs can force a retiree into a higher income tax bracket and potentially pose a financial hardship in your golden years when you may be on a fixed income. By reducing or eliminating the need to take mandatory RMDs, a saver can look forward to the likelihood of paying fewer income taxes in retirement and having more to spend on lifestyle expenses.Examples: Taxes Owed on Roth Conversion StrategiesThe challenge of Roth conversion is that amounts transferred from a tax-deferred account to a Roth IRA are considered taxable income. In the case of a sizable conversion, this can bump a saver into a higher marginal income tax bracket and lead to a large tax bill that is due when filing the current year's return.For example, if your 401(k) is worth $1 million and you convert 25% in one year, or $250,000, that would add $250,000 in taxable income to your current income. If you are a single filer with no other income, this would put you in the 32% marginal tax bracket and lead to a tax bill of approximately $53,014, using the rates in effect for the 2024 tax year.Terms and Privacy PolicyEU DSA contactPrivacy & Cookie SettingsMore Info