In-Plan Roth Conversions: Complicated, yet Appealing
Roth assets have long been appealing for investors seeking tax-free growth, but conversions from pre-tax assets to Roth inside of defined contribution retirement plans remain limited. The PLANSPONSOR 2026 DC Plan Benchmarking Report, published by PLANADVISER’s sister publication, found that 40% of surveyed plans allowed in-plan Roth conversions.
Similarly, Vanguard’s 2026 “How America Saves” report found that 36% of its defined contribution plans offered in-plan Roth conversions and just 10% included automatic conversion features, which set up recurring in-plan transfers of a certain percentage of contributions.
On the participant level, Vanguard reported that 59% of participants were offered in-plan Roth conversions, but only 4% used them. Automatic in-plan conversions were offered to 29% of participants, of which 8% used them.
Despite single-digit-percent participation rates across most demographics, only high earners showed increased interest in Vanguard’s in-plan conversions: 14% of participants earning more than $250,000 who were offered in-plan Roth conversions used them, and more than one-quarter (26%) used automatic conversions when offered.
Adam Tremper, head of retirement platforms at T. Rowe Price, agrees that adopters tend to be older and wealthier.
“We expected to see more early adoption for the younger contributors, but we’re seeing more of the high-wage earners, who also skew a little bit older, taking advantage of the Roth feature and in-plan Roth rollovers,” Tremper says.
More than 7 million retirement savers gained access to in-plan Roth conversions in January, when the federal government officially allowed them in its Thrift Savings Plan, but the response was muted. From January 28 through April 30, only 26,439 participants completed 30,913 transactions, according to figures shared at the Federal Retirement Thrift Investment Board’s May meeting.
Nevertheless, the TSP conversions totaled $683 million as of April 30, with a median transaction size of $9,932. They involved a wider range of ages, with nearly one-third (32%) of participants younger than 35; another 45% between the ages of 35 and 59; and 23% 59 or older.
The participants reported a wide range of reasons for undertaking in-plan conversions, with nearly 70% wanting tax-free growth potential, 55% aiming to reduce future tax liability, and about 40% seeking lower required minimum distributions. They also had nearly universal positive feedback, with 93% of those surveyed reporting the process as “easy” and 85% saying they did not need assistance.
Taxes and Complexity
Even if some plans make the process of in-plan Roth conversions easier, participants and even some advisers could be thrown off by the details. Matthew Vandre, director of digital services and financial planner at Francis LLC, says it may not be easy to distinguish Roth sources from other after-tax sources that have separate rules.
Even the process for in-plan conversions is not standardized, Vandre notes. Some plans require a paper form, while others provide an online form. The terminology can differ: The assets in question can be “contributions,” “sources” or “accounts,” and the action can be a “conversion,” “election” or “transfer.”
“Pressing the button [to start a conversion], some recordkeepers do a great job of modeling this and laying it out; others don’t,” Vandre says.
The tax bill is another crucial consideration. Vandre says participants need fiduciary advice on the implications of their allotments and whether they have enough liquidity to cover the costs.
“This is like getting a big bonus. … You have this big influx of taxable income that could cause a problem if there wasn’t enough withholding,” Vandre says. “Maybe you’re filling up a 22% or 24% tax bracket with this move, and you’re going to owe tens of thousands of dollars in federal income tax.”
Tremper says clearer guidance from regulators could broaden the appeal among retirement plan fiduciaries. He hopes to see “very, very clear safe harbors and guidelines for sponsors,” enabling automation of conversions and defaults to be set without increasing fiduciary risk.
The Upside
Even with the hassle, experts say in-plan Roth conversions offer many advantages. Younger workers can convert small balances and take advantage of a longer timeline of tax-free growth. Pre-retirees can reduce their future required minimum distributions, since Roth account owners are not subject to RMDs. Vandre says immediate in-plan Roth conversion can help high earners avoid a “double negative” of after-tax contributions followed by taxable growth.
Ash Ahluwalia, head of Social Security planning at OneTeam Financial LLC, a Prosperity Capital Advisors company, recommends that people take advantage of current tax rates, and in-plan Roth conversions can address what he calls the “biggest drag” on a retiree’s portfolio: taxes.
“We’re in the some of the lowest tax rates in the history of the country,” Ahluwalia says. “Having a large, tax-free bucket of money that you can get to at a known low tax rate … the more you can do tax management down the road.”
He adds that Roth conversions can also help with legacy planning, as beneficiaries usually inherit Roth accounts tax-free, so long as the account is more than five years old.
“I know a lot of people think about … how long is it going to take for the tax benefits of a Roth conversion to pay off? That’s important, but I don’t even think that’s critical,” Ahluwalia says. “I think it’s much more about having financial flexibility in retirement and having that other bucket of money to do things with.”