roth 401k
Are roth 401k contributions available at any age without tax or penalties like roth ira contributions are. Have a client that had some of his 401k contribution last year go into roth and is having cash flow problems for college tuition. thanks
Permalink Submitted by Alan Spross on Thu, 2008-05-22 17:17
If still employed, he may have to check the plan’s hardship distribution rules. Those would be taxed in the same fashion as if he was separated from service and took a non qualified distribution from the designated Roth account.
A huge difference between Roth 401k and Roth IRAs are that the ordering rules for IRA distributions do not apply to the Roth 401k. Instead of the first dollars coming from the employee contributions exclusively, the distribution is pro rated between contributions and earnings in the account at the time of the distribution. The earnings portion will be taxable and because the higher education exception only applies to IRA distributions, the early withdrawal penalty will apply to the earnings as well.
I suspect that the bulk of the distribution would be tax free because the markets have gone no where over the past 17 months, he did not participate prior to that, and any company match goes into the pre tax account. The main challenge will be if he can meet the hardship distribution requirements. I assume all the usual education aid and/or loan options have already been checked out.