Roth 401k to Roth IRA rollover, when take out contributions
If I have a Roth 401k, then roll my money out to a Roth IRA, when can I take out my contributions without a tax penalty. For example the Roth 401k balance is $60,000 and $40,000 of that is contributions. When I roll it out can I take $40,000 out day 1 or do I have to wait for 5 years or at 59.5.? Thanks.
Permalink Submitted by Alan - IRA critic on Wed, 2015-06-10 21:56
You can take the 40k of Roth 401k contributions (will be shown on the 1099R in Box 5) out of the Roth IRA any time because it is treated the same as regular Roth IRA contributions. When the rollover hits your Roth IRA therefore, the prior regular contribution balance is increased by 40k. So you could take out 40k plus whatever balance of regular Roth IRA contributions you had previously without tax or penalty. I am assuming here that your 40 of Roth 401k contributions were regular salary deferral contributions, not in plan Roth rollovers. If there was an IRR (in plan Roth rollover), then the answer changes because these have 5 year holding requirements just like Roth conversions.
Permalink Submitted by Roger Fine on Thu, 2015-06-11 12:48
When using the strategy of rolling over post-tax cash from a traditional 401(k) plan into a Roth IRA, what is the mechanism and justification of getting post-tax money into the 401(k)? I am over 50 and actively employed.
Permalink Submitted by Alan - IRA critic on Thu, 2015-06-11 18:58
A 401k is permitted to include a “separate account” per Section 72(d)(2) to receive employee after tax contributions. Because it is treated as a separate account, any earnings on these after tax contributions must remain in the separate account until a distribution takes place. Another tax code Sec 415(c) limits defined contribution plans to receive a total limit of 53k (59k at 50 and over) which includes all contributions, employer matching, pre tax, designated Roth, forfeitures, and the after tax employee contributions to the separate account. In most cases, plans place a limit on the employee contributions in order to avoid breaching the 53k limit and also to prevent failing discrimination testing. Most employees elect to make the after tax contributions only after maxing out the elective deferrals (either pre tax or Roth). Once the employee has a balance in the after tax sub account, they are allowed to distribute at various frequencies according to plan rules. To prevent a Roth IRA rollover from the after tax account from including too much in earnings, the employee will generally roll the balance to a Roth IRA fairly often. Some plans may not allow a distribution out of the plan, but allow an in plan Roth rollover where the sub account balance is rolled into the designated Roth option in the same plan. This accomplishes basically the same thing, a rapid buildup of a Roth balance which is more beneficial that saving in taxable accounts.