How long can I convert 401(k) to Roth 401(k)?

Question

I understand that (simplified) 401(k) is pre-tax money, and Roth 401(k) is post-tax money. That means moving money from the former to the latter, I have to pay taxes on it, and those taxes might need to come from outside money (not the moved amount), if I have no qualifying event or am old enough.

Now assume I realize that in a certain year, my taxable income will be very low or even negative, because of a special event (like for example, selling a rental property with accumulated high passive losses).

It seems once I realize that, it would be a good idea to use that year to move 401(k) savings (accumulated in previous years) into Roth 401(k) savings, basically tax free or at least lower-than-in-other-years taxed, because of the previously negative taxable income.

The question is: Until when can I do that move? Dec/31 of that year? or Apr/15 of the following year?

Answer 1

Conversions must be done during the calendar year. This would apply to both IRA and 401(k) accounts.

For IRAs, deposits may be made until 4/15, and the same holds for Solo 401(k) accounts. For conversions, the IRA permits a recharacterization, basically, a do-over, which reverses the conversion, any or all, in case you have any reason it should not have been done. That has a deadline of 10/15, i.e. 4/15 plus 6 month extension. The 401(k) conversion has no such provision.

Simple answer 12/31 of the given year.

Answer 2

the deadline for roth conversions is december 31st.

more precisely, roth conversions are considered to have happened in the tax year the distribution was taken. this creates a kind of loop hole for people who do an ira rollover (not a trustee-to-trustee transfer). technically, you can take money out of your traditional ira on december 31st and hold it for 60 days before deciding to roll it over into either another traditional ira or a roth ira. if you decide to put it in another traditional account, it is not a taxable event. but if you decide to put it in a roth account, the "conversion" is considered to have happened in december. unfortunately non-trustee rollovers are tricky. for one, the source trustee will probably take withholding that you will have to make up with non-ira funds. and rollovers are limitted to a certain number per year. also, if you miss the 60-day deadline, you will have to pay an early-withdrawal penalty (with some exceptions). if you really want to push the envelope, you could try to do this with a 60-day-rule extension, but i wouldn't try it.

source: https://www.irs.gov/publications/p590a/ch01.html

oddly, recharacterizations (basically reverse roth conversions) have a deadline of october 15th of the year after the original roth conversion it is reversing. so, you could do the conversion in december, then you have up to 10 months to change your mind and "undo" the conversion with a "recharacterization". again, this is tricky business. at the very least, you should be aware that the tax calculations for recharacterization are different if you convert the funds into a new empty roth account vs an existing roth account with a previous balance. honestly, if you want to get into the recharacterization business, you can probably save more on taxes by converting in january before 20-month stock market climb rather than simply converting in the year your tax brackets are low. that is the typical recharacterization strategy.

source: https://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-IRAs-Recharacterization-of-Roth-Rollovers-and-Conversions