Hello. I have a client who is 52 years old, and terminated from employer. He has a 401k with the following Sources:
Pre – Tax Deferral
Roth Deferral
Safe Harbor Non-Elective
He would like to distribute his Roth Deferral amount. What’s the best way to accomplish with tax or penalty?
Thanks!
Would it be simplest if we open a New Roth IRA for him, instead of using his existing one that he’s been contributing to, rolling over the Roth portion of the 401k to it, and distributing his contributions from it, and leaving the gain in the Roth?
That would not accomplish anything because all Roth accounts are treated as one combined account. It’s simpler to just roll the Roth 401k into the existing Roth IRA account.
Permalink Submitted by Alan - IRA critic on Tue, 2023-03-07 22:00
DIstribute in what form? If distributed to himself any gains will be subject to tax and penalty. But if distributed as a direct rollover to his Roth IRA, there will be no current taxes due. A later distribution from the Roth IRA prior to 59.5 will also be non qualified, but Roth IRA distributions fall under the more favorable ordering rules, where any gains come out last.
Permalink Submitted by Julie Brangenberg on Thu, 2023-03-09 20:41
He would like to take the Roth 401k contribution amount as a payment to him. So, should he rollover the Roth portion to a Roth IRA and the pre-tax to a Traditional IRA, and then distribute the Roth IRA 100%? Thanks!