Why a $50,000 Roth Conversion From a 401(k) Can Reach the Roth in Full, While the Same Amount From an IRA May Lose 10% to Withholding

The route you choose for a Roth conversion can determine whether the full amount ends up in the account or whether part of it is withheld before the conversion is finished. The two methods work very differently, and that difference can matter a great deal.

Turning pre-tax retirement savings into a Roth account raises an important withholding issue: the federal tax withheld depends on whether the money comes from a 401(k) or an IRA. The tax owed on the conversion itself is the same in either case, but the amount withheld up front can make the April tax bill look quite different.

Federal law says a rollover from a pre-tax account to a Roth IRA adds to gross income any amount that would otherwise be taxable, except as part of a qualified rollover contribution. The early distribution tax under section 72(t) does not apply to the converted amount. What differs is how and when the tax gets paid.

Who Holds Most of These Assets

Federal Reserve Distributional Financial Accounts data show that these balances are concentrated among people close to retirement. Families ages 55 to 69 hold about $8.5 trillion in defined contribution benefits, or 49.5% of the total, while families ages 40 to 54 hold another 33.1%.

Older families have also increased their share over time. People age 70 and older held 2.3% of these assets in 1989, and that share has risen to 9.4% in the latest quarter. The Fed data on defined contribution benefits by age show the largest pre-tax balances among families ages 55 to 69.

Why a 401(k) Conversion Comes With No Withholding

Inside an employer plan, a traditional-to-Roth move is known as an in-plan Roth rollover. The IRS says there is no income tax withholding required on an in-plan Roth direct rollover, and it also says you cannot voluntarily withhold on these rollovers. If you convert $50,000 this way, the full $50,000 goes into the designated Roth account.

You then pay the tax on your return. For 2026, the 22% rate applies to single taxpayers earning more than $50,400, and the 24% rate begins above $105,700.

If the entire conversion falls in the 22% bracket, the federal tax is $11,000. If it falls in the 24% bracket, the tax is $12,000.

IRS Publication 575 says that when a rollover creates taxable income, the taxpayer may need to increase withholding or make estimated tax payments. In practice, that means paying the tax from outside the converted balance, usually through higher paycheck withholding or quarterly estimated payments.

How IRA Withholding Changes the Outcome

An IRA conversion is treated as a nonperiodic distribution. Under federal law, the payer must withhold 10% unless the owner elects not to have withholding. That election is made on a distribution-by-distribution basis, usually on Form W-4R. If the default is left in place on a $50,000 conversion, $5,000 is sent to the IRS and $45,000 reaches the Roth IRA.

The withheld amount is treated as money that was never converted. Wells Fargo conversion guidance notes that if a person under age 59 1/2 uses withholding to pay the taxes, an additional tax may apply to that portion. At 10%, the extra cost on $5,000 would be $500, in addition to regular income tax. That $5,000 also never gets the chance to grow tax-free inside the Roth.

The default withholding still does not cover the full tax bill. At the 22% rate, a $11,000 liability minus $5,000 withheld leaves $6,000 still due at tax time.

Comparison of the Two Paths

What to Check Before Converting

IRA withholding can be avoided by setting the withholding election to zero, allowing the full amount to convert while the tax is paid from cash outside the account. People who are already older than 59 1/2 avoid the additional tax, although any amount withheld still never enters the Roth. Timing also matters, and the low-tax years between the last paycheck and the first required withdrawal are often the least expensive time to do a conversion.

Rules for processing rollovers could change. In Notice 2026-49, the Treasury Department and the IRS said they are considering guidance to standardize rollover procedures. One idea is a safe harbor that would let the distributing trustee reasonably conclude that no withholding is needed on the rollover contribution. That proposal concerns rollovers between plans, while the 10% default for IRA-to-Roth conversions remains in the law.