Roth IRA and Roth 401(k) withdrawal

Submitted by Josh Harmon on Mon, 2020-12-07 16:35

I have a client who has money in a Roth IRA rolled over from a Roth 401(k), and a Roth 401(k) at his current employer. He is 49 years old, and will be soon leaving his company. Do withdrawals from both accounts count as basis first and gain second? We do not have cost basis information for his Roth IRA, and would have to contact his previous plan to obtain it. Does it make sense to rollover his Roth 401(k) to his Roth IRA? We do have cost basis info on the current Roth 401(k).

Thank you!



Submitted by David Mertz on Mon, 2020-12-07 17:15

  • The ordering rules that have basis coming out first only apply to Roth IRAs, not to Roth 401(k)s.  Distributions from Roth 401(k) are a proportional mix of basis and earnings.
  • To access basis in the Roth 401(k) first, the Roth 401(k) would first have to be rolled over to a Roth IRA, with the basis in the Roth 401(k) becoming basis in the Roth IRA.  Distributions from the Roth IRA would then be subject to the Roth IRA ordering rules with basis coming out first.
  • However, an in-service distribution from the Roth 401(k) prior to age 59½ would generally not be permitted by that plan, except as a hardship distribution, and hardship distributions are not eligible for rollover.
  • About the only way for someone under age 59½ to make an in-service distribution from the Roth 401(k) in 2020 that could be rolled over to a Roth IRA would be if the distribution was a coronavirus-related distribution to an affected individual as defined by the IRS.

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