Roth 401(k) rollover
Assistance with the following scenario is much appreciated
Client rolled over a non-qualified distribution (5 year hold period was not satisfied) rollover of $100,000 (basis unknown) from his Roth 401(k) to a Roth IRA
The rollover established the Roth – this is his first and only Roth IRA
To date the 5-year hold period in the Roth IRA has too not been satisfied.
The Roth IRA contains only rollover money from the Roth 401(k)
client is < 59.5
Questions
What amount for withdrawal if any eligible to withdrawn tax/penalty free?
Is the entire $100k rollover considered basis? even though the 5 year period wasnt satisfied in the Roth 401(k)?
Are Roth 401(k) rollovers deemed Roth contributions for the purpose of the 5 year rule?
Thank you
Permalink Submitted by Alan - IRA critic on Thu, 2015-03-26 17:54
The 1099R reporting the rollover will show the amount contributed (basis) to the Roth 401k. That amount could be more or less than the amount distributed. This basis is treated as a regular Roth IRA contribution in the IRA and that means he could withdraw it tax and penalty free anytime. Amounts in excess of the basis were the earnings and they will be treated as Roth IRA earnings. If he takes a Roth IRA distribution, the earnings come out last, but if he takes out all the basis and then withdraws earnings, the earnings will be subject to tax and penalty. Client should keep this 1099R until his Roth is qualified since it is the only documentation of the amount he contributed to the Roth 401k.