5 year holding period after rollover from Roth 401(k)

Submitted by John Peterson on Wed, 2015-02-04 19:08

Individual has made Roth 401k contributions for over 5 years but has never had a Roth IRA until he rolls out his Roth 401k.

Do the years in the Roth 401k “count” or does he start at zero in the Roth IRA?

Permalink Submitted by Alan - IRA critic on Wed, 2015-02-04 20:11

If his Roth 401k is qualified (5 years and age 59.5) then the entire balance is treated as if it were a regular Roth IRA contribution in the Roth IRA with a new Roth IRA clock starting with the rollover. However. any earnings generated in the new Roth IRA will not be qualified and tax free for 5 years.
And if the Roth 401k was not yet qualified (not yet 59.5), then the 5 year clock in the Roth IRA also starts over. In the meantime, the amount of Roth 401k deferrals which shows on the 1099R will be treated as regular Roth IRA contributions. The earnings rolled over from the Roth 401k will be treated as Roth IRA earnings.