Hello. Client (age 52) has Roth 401k Rollover, which $30K is EE Cont/Roth and $7K is earnings. He is rolling into his Roth IRA, which has been in existence for more than 5 years. He started contributing to the Roth 401k in 2019. Is he eligible to withdraw the $30K from his Roth IRA without tax and penalty? Thanks!
In the same situation, does it matter if the Roth IRA has some converted funds from IRA (regular & backdoor roth conversions) ? I am trying to determine if there is any advantage in rolling the Roth 401K funds to a brand new Roth IRA instead of using an existing Roth IRA as above ? I am below 59.5 now and plan to keep the Roth IRA funds thru 59.5 but you never know 🙂
To add another wrinkle – The roth 401K is the result of in-plan roth conversions (after-tax mega backdoor) that is less than 5 years old.
There is no benefit to rolling the Roth 401k into a new Roth IRA, since all owned Roth IRAs are treated as one combined account for tax reasons. The contributions to the Roth 401k, both regular and in plan Roth rollovers will be treated as if they were regular Roth IRA contributions after the rollover of the Roth 401k funds, As such these amounts can be distributed tax free anytime, Roth 401k gains will be treated as Roth IRA gains.
Permalink Submitted by Alan - IRA critic on Wed, 2023-04-12 15:41
Yes. His Roth IRA already has regular contribution basis from prior contributions (unless he withdrew them). The Roth 401k rollover will add 30k to that balance of regular Roth IRA contributions, all of which can be distributed at anytime without tax or penalty. Client just needs to keep track of his Roth IRA basis as before, and add 30k to it. The 30k will show in Box 5 of the direct rollover 1099R , and he should keep that 1099R until age 59.5.