individual Roth 401k rollover to Roth IRA?
I am self-employed–no employer, no employees. I believe that I would be eligible to fund an individual Roth 401k with employee-only contributions of $16,500 for 2011 and $17,000 for 2012 ($5,500 extra per year for taxpayers over 50). These would be post-tax, non-deductible contributions to the Roth 401k.
After funding the Roth 401k each year, I would like to roll them over to a Roth IRA. Why? I believe that the Roth 401k is subject to the Minimum Distribution Rules, beginning at age 70.5. The Roth IRA is not. So a rollover to a Roth IRA would extend the tax-free status further into the future. (Under these facts, I believe that the rollover would not trigger any taxation.)
Is my idea permissible? If so, how long would I need to leave the contributions in the Roth 401k before doing the roll-over to the Roth IRA? Could the rollover be done immediately? Should I create a new Roth IRA to receive the rollover, or could I use a long-standing Roth IRA?
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Permalink Submitted by Alan Spross on Wed, 2012-02-22 20:09
You are correct that Roth 401k assets are subject to RMDs at 70.5 for less than 5% owners. As long as the plan document allows you to make in service distributions, you can roll them to your Roth IRA and that will avoid the RMD issue if there is no year end balance in the Roth 401k.
You could use your existing Roth IRA account to receive the rollovers. If your Roth IRA is over 5 years old it is qualified and all assets rolled over will also become qualified in your Roth IRA even though they are not qualified in the Roth 401k.