Roth 401k rollover to a Roth IRA (under 5 years & 59yo)
Hello,
Please clarify how to come up with cost basis for free withdrawal purposes for a Roth that had been opened and only funded with Roth 401k rollover.
1. the client is under 59 1/2 and the roth account is 2 years old.
2. the initial contribution to the roth 401k was 7K which grew to 9K at the time for rollover due to termination of employement
3. now the account is 13K
Understanding that any earnings are not yet “qualified” he wants to withdraw up to what is not subject to income taxation. is 7K (which is the sum of contribution) considered income-tax free contribution portion? or the entire 9K that was rolled over considered a basis for the Roth IRA? which I think it’s too good to be true.
Also, if 7K was the basis, who is a responsible party to keep track of the basis?
is that the 401K custodian? or current IRA custodian? or does an individual go by the W2 that shows the initial contribution?
Your help is very much appreciated. Thank you.
Permalink Submitted by Alan - IRA critic on Fri, 2018-05-25 18:36
The basis in regular Roth contributions is 7k and can be withdrawn tax and penalty free anytime. The amount of basis in the Roth 401k is reported in Box 5 of the 1099R reporting the distribution from the plan. That 1099R should be retained as it documents the basis and boxes 10 and 11 also contain important info regarding the Roth 401k. Once the funds are rolled to a Roth IRA, the Roth IRA owner becomes responsible for keeping track of the Roth IRA basis, including the year and amounts (taxable and non taxable) of in plan Roth rollovers and Roth IRA conversions. Most Roth IRA owners to not keep the detailed breakdown needed if they were to take a non qualified Roth IRA distribution, and this data is required to report such a distribution on Form 8606.