Multi-Contribution 401k Account Earning, how is it recognized?
My employer provides a 401k that allows me to contribute a combination of pre-tax, after-tax, and Roth dollar. In such an account, are the earning all pre-tax or do they separate into Roth and non-Roth earning? For example, if
Market value of the account is $100K
Pre-Tax Contribution is $20K
After-Tax Contribution is $20K
Roth Contribution is $10K
Is the $50K earning all pre-tax? Or
Is $10K of the $50K earning counted as Roth earning, hence tax free?
Permalink Submitted by Alan - IRA critic on Sat, 2014-11-08 20:40
The earnings on all accounts are pre tax, but once the Roth 401k becomes qualified, the earnings in that account become tax free.
Permalink Submitted by Gregg Su on Sun, 2014-11-09 00:42
Thank you for addressing my question. One additional following question: When will the Roth 401k account be qualified? Is it when I roll it out to a Roth IRA?
Permalink Submitted by Alan - IRA critic on Sun, 2014-11-09 03:43
The Roth 401k account becomes qualified when you reach 59.5 and also have held it for 5 years. If you roll it into a Roth IRA that is qualified it also becomes qualified as part of the Roth IRA. If you roll it to a Roth IRA that is not qualified, it becomes qualified when the Roth IRA has been held for 5 years and you are 59.5.