Roth-401K to Roth-IRA Rollover
I am 71 & still working. My new 401-K allows in-service distributions after age 65. Can I, immediately after making my Roth 401-K deferral contribution, roll it into my Roth-IRA & avoid paying taxes on any earnings? I do not plan to be in the 401-K for 5 years. Also, are RMD’s required from Roth-401K accounts?
Permalink Submitted by Alan - IRA critic on Sat, 2015-08-01 16:38
Roth 401k accounts are subject to RMDs, but not until you retire from the employer (unless you are a 5% or more owner of the firm). Rolling out of the Roth 401k to your Roth IRA will eliminate RMDs if you do so before the year you retire. There are no taxes due on these direct rollovers. Once your Roth IRA is qualified (5 years from year of first Roth IRA contribution of any kind), all the Roth 401k funds rolled into the Roth IRA also become immediately qualified and fully tax free if you take Roth IRA distributions. Even before your Roth is qualified, you can always remove your contributed amounts tax free. The contributed amount on a Roth 401k rollover is the amount of Roth 401k salary deferrals you paid into the plan. Since earnings come out last, chances are your Roth IRA will be qualified before you need to withdraw any earnings. It should be fairly easy in your situation to manage this to avoid RMDs and any taxes even if you need to take a Roth IRA distribution. (Note: you would have a small RMD for the Roth 401k for the year you retire based on your balance at the end of the prior year, so your rollovers will reduce that balance).