Roth 401(k) – Distribution Rules in RMD Years

Submitted by brcwm on Wed, 2022-08-31 12:46

A client has a Roth 401(k) with both pre-tax and Roth monies in the account. Once turning 72, how do distribution rules work? Is it an aggregate of the entire 401(k) that determines the RMD? Or does the Roth have its own RMD, and the pre-tax has its own? Can you choose to keep the Roth funds in the 401(k) and not distribute them as RMD? Or is it automatically pro rata like the IRA conversion pro rata rules?



Submitted by Alan - IRA critic on Wed, 2022-08-31 15:22

  • A participant would usually roll over the Roth 401k to a Roth IRA prior to year 72 in order to avoid RMDs, since a Roth IRA has no RMDs. The pre tax portion of the plan would be rolled to a TIRA account. Both direct rollovers would be non taxable.  
  • If the above rollover is not done and the client has retired by age 72, the tax code allows client to take the RMD in any proportion between the Roth and pre tax money, but some plans do not know about or allow this flexibility. For those plans each portion of the plan would distribute it’s own RMD amount. At that time if the Roth 401k had been held 5 years, it would be qualified and the entire Roth 401k distribution would be non taxable. If the 5 years had not been met, the amount of gains in the Roth portion would be pro rated with the Roth contributions, and the portion allocated to gains would be taxable. Not having reached 5 years would be another reason to roll the Roth 401k and also the pre tax portion over to their respective types of IRA accounts.

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