The Cost of Rolling Pre-Tax Retirement Savings Into a Roth, Part 1

Imagine this scenario. You’ve just left your old job, but you still have a 401(k) retirement savings account at your former employer into which you had been making pre-tax contributions. You’re ready to move that money into an Individual Retirement Account (IRA) where you’re thinking about rolling it over into a Roth IRA so it can grow completely tax free into the future. But if you do, you’ll have to pay income taxes on the amount you roll over, which you’ll have to have withheld out of the money that’s in your pre-tax account because you don’t have the cash to otherwise pay them.

How much of those pre-tax savings will you have to have withheld to pay those income taxes? And how long will it take you to recover that money with the tax-free growth of the post-rollover amount invested in the Roth IRA?

Believe it or not, these are questions that many Americans may find they need to answer several times during the course of their working lives. In 2025, about half of working Americans were contributing money directly from their paychecks to 401k-type plans through their employers, with most making their contributions on a pre-tax basis.

At the same time, about half of Americans will change employers after about four years on the job. If they’ve been making pre-tax contributions to their retirement savings, they’ll have these exact questions.

Which is why we’ve built the following tool! Here, we’ll need you to enter the amount of money you might be looking to convert from a pre-tax retirement savings account to a Roth IRA and your marginal income tax rate for the tax year in which you’ll make the change, assuming the taxes withheld will have to come out of your accumulated pre-tax retirement savings. We’ll then estimate the amount of taxes to be withheld and how long your tax-free savings will take to recover back to your pre-tax savings amount. If you’re reading this article on a site that republishes our RSS news feed, click here to access a working version of this tool!

In using this tool, the marginal federal tax rate is the one that applies when you add the amount of pre-tax income you’re seeking to roll over into a Roth IRA to your expected taxable income for the year. For our default example, we’ve set the marginal federal income tax rate to be 22%, which applies to the following taxable income amounts for the indicated income tax filing status:

• Single or Married filing separately: $48,476 – $103,350
• Married filing jointly: $96,951 – $206,700
• Head of household: $64,851 – $103,350

The expected growth rate of the tax-free investment is set at 9%, which is rounded down from the average rate of return for an investment in the S&P 500 of any duration in the years since January 1871.

With these defaults and a pre-tax amount of $24,000, the tool finds the amount of income taxes to be withheld is $5,280, which reduces the amount of funds being rolled into a Roth IRA down to $18,720. If it grows at an average of 9% a year, the amount rolled into the Roth retirement account would take 2.88 years to recover its pre-tax value.

Since those default values may be very different from ones that might be relevant for you, you’re welcome to change them to ones that apply for whatever scenario you’d like to consider.

In Part 2, we’ll use the same math to explore a different scenario for executing a pre-tax to Roth rollover that can lead to a potentially better outcome for investors considering executing this kind of strategy.

Image Credit: Microsoft Copilot Designer. Prompt: “A digital art concept of a pre-tax retirement account being rolled over into a Roth IRA that shows income taxes being paid out of the pre-tax retirement account”.