Withdrawal of cost basis from ROTH IRA funded with Roth 401K rollover

Submitted by Keith Kim on Mon, 2018-08-27 16:43

Hello,
I’m under 59 1/2 and am in the process of taking my cost basis from a Roth account.
The account was funded 2 years ago with a roth 401 rollover from my previous employer.
Please help me with a couple of questions:
1. When I called the TPA for my previous employer, they were able to tell me what my overall contribution was.
And I believe that that original contribution amount still remains as my principal that I can withdraw without any penalty. is this correct?
2. And I also understand that I am responsible for keeping track of the principal amount. Let’s say I request for distribution and receive money, what kind of tax forms should I provide later? and which company is responsible for generating which form?

Thank you!



Submitted by Alan - IRA critic on Mon, 2018-08-27 17:18

  1. Yes, the 1099R you received for the direct rollovers should show your Roth 401k contributions in Box 5. That figure should be the same as what the plan indicated, and can be withdrawn from your Roth IRA without tax and penalty anytime you wish. However, if you did any in plan Roth rollovers (IRRs) in your Roth 401k, you will also have basis treated as Roth IRA conversion basis once the the plan has been rolled to your Roth IRA, and there is a 5 year holding period for those amounts starting with the year of the IRR. Withdrawals of such IRRs before 5 years will result in a 10% penalty unless you are over 59.5 or qualify for an exception.
  2. Withdrawals from your Roth IRA are reported on a 1099R, but the IRA custodian has no idea what your cost basis is. Once the funds are in a Roth IRA, you are responsible for tracking your basis (both regular and conversion. etc) so that you can complete Form 8606 to report the distribution. Form 8606 determines if any of your distribution is taxable.
  3. You should keep the 1099R that reported the direct rollover from the Roth 401k, as you can use it to show the IRS that you have Roth IRA basis should they ever ask. 
  4. Most people do not keep track of their Roth IRA basis adequately. That is fine if they never take a non qualified distribution, but if they need the money sooner they will have to scramble to try to reconstruct their basis. They might even have to order Form 5498 from the IRS, and the IRS may not provide copies all the way back to 1998, the first year of the Roth IRA. So you ask a good question here.

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