Designated Roth conversion and Roth IRA rollover
50 year old client made an intra-plan Roth conversion in their 401(k) two years ago and has now been laid off. They have an existing Roth IRA that is ten years old. If they rollover from the Roth 401(k) to the Roth IRA, can they access their converted assets without penalty immediately?
Permalink Submitted by Alan - IRA critic on Thu, 2018-02-08 23:28
No. The 5 year holding period for conversions continues from the 401k into the Roth IRA, as if the in plan conversion had been a Roth IRA conversion. The Roth 401k and in plan rollovers are treated in the Roth IRA as regular Roth IRA contributions and Roth conversion respectively and can be tapped without taxes, but the 10% penalty on the taxable portion of the in plan Roth conversion stays for 3 more years. Client should update the Roth IRA accounting when the rollover is done, and then keep track of it until 59.5.