TSP Roth 401(k) Qualified Distribution 5-Year Rule Start

Submitted by Ray Oconnell on Thu, 2023-05-18 17:21

Assume person is > 59.5 and contributed to the Roth 401(k) for 5 + years. Does not have a separate Roth IRA. Does the time in the Roth 401(k) count for the 5-year holding period, or does person have to roll over to an Individual Roth IRA to start the 5 years?
Thank you,
Ray O’Connell



Submitted by David Mertz on Thu, 2023-05-18 18:46

  • Time in a designated Roth account in an employer plan like a 401(k) or the federal TSP does not count toward the 5-year holding period for a Roth IRA.  The holding period in the employer plan does not transfer to the Roth IRA with a rollover to the Roth IRA.  Because this would be the individual’s first Roth IRA, the 5-year qualification period for the individual’s Roth IRAs would begin on January 1 of the year in which the rollover to the Roth IRA was completed.
  • Because the distribution from the Roth 401(k) or Roth TSP would be a qualified distribution from that plan, the entire amount rolled over to the Roth IRA would become contribution basis in the Roth IRA which could be distributed at any time tax-free.  Only the gains made within the Roth IRA would be taxable if distributed before the 5-year Roth IRA qualification period is completed.  Earnings come out last under the Roth IRA ordering rules.

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