Submitted by Alan - IRA critic on Mon, 2023-12-11 14:51

Yes, the two clocks are the same for IRAs and Roth 401k plans. What differs is that the Roth IRA ordering rules do not apply to designated Roth account non qualified distributions, and therefore in plan Roth rollover funds and in plan earnings will come out sooner with a Roth 401k distribution than a Roth IRA distribution, exposing those distributions to tax or penalty. Distribution rules are more tax favorable for a Roth IRA.

Submitted by alan smithee on Tue, 2023-12-12 09:58

Thank you. That’s an important distinction for the second clock.But the rules are still confusing.Does the first clock work the same way for distributions from a roth 401k as for those from a roth IRA?With the statement “with multiple conversions, each conversion has its own five year clock” it’s unclearif distibutions after reaching 59 ½ are free of the 10% penalty even if the distibutions include converted amounts that have not yet waited out their five years.And for the second clock, Are the criteria for  “Qualified Distibution”  from a Roth 401K still the same as those coming form a Roth IRA? namely:-at least 5 years have passed since January 1 of the year of the first contribution or conversion into ANY Roth 401k, AND-The person receiving the distribution is at least 59 ½ (or disabled or a first-time home buyer)

Submitted by Alan - IRA critic on Tue, 2023-12-12 16:03

  • The first clock (conversion holding period) works the same in both Roth account types and ends at 59.5. For example, if a conversion was done at 57.5, there is effectively only a two year waiting period since all open 5 year conversions end at 59.5.
  • For the second clock (earnings being qualified and tax free), the rules are again the same, being at least 5 years from the first contribution of any kind and reaching 59.5 or being disabled. First time homebuyer only applies to Roth IRAs, not Roth 401ks accounts, but it’s only good for 10k. Finally, the first contribution can be to any Roth IRA account, but for Roth 401ks the 5 year holding is separate per plan, but if the older plan is directly rolled into the newer Roth 401k plan, the longer holding period of the older plan is applied to the newer plan.
  • Note that the 5 year clock does not start on excess contributions or failed conversions.

Submitted by alan smithee on Wed, 2023-12-13 09:16

Thank you again. That’s a material difference.  So for the obvious question:  Does rolling that Roth 401k into a Roth IRA make this rolled-over money (specifically the earnings portion of it)  get considered under the “first contribution or conversion to any Roth IRA account” ?  If it does, then having one Roth IRA that’s older than 5 years would effectively nullify the “5 year holding per 401k plan” requirement.

Submitted by David Mertz on Wed, 2023-12-13 13:04

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