Roth 403b
I have a client that has funded a Roth 403b through work. She is retiring and wants to transfer the Roth 403b to a Roth IRA. She is over 59.5. The transfer will be completed to a new Roth IRA. Does she have to hold the Roth for 5 years before she can take all of the money out? It appears she could take out the initial investment but not the earnings. Please clarify the rules for the 403b Roth transfers to a Roth IRA.
Thanks
Permalink Submitted by Alan Spross on Mon, 2008-08-18 21:10
Russ,
The answer depends on when she first established a Roth IRA, not necessarily THIS new Roth IRA.
Because the 403b Roth could not possibly meet the 5 year requirement because these accounts were not available prior to 2006, the Roth 403b would not be qualified. In that case, the aging of the Roth IRA governs and the holding period under the 403b is wiped away. This means that if she first established a Roth IRA prior to 2004, her Roth IRA is qualified since she is over 59.5 and will have met the 5 year Roth IRA holding requirement. The 403b transfer would also become instantly qualified for full tax free treatment. BUT if this Roth IRA is her first Roth IRA, then she would not attain qualification for the earnings until 2013 as you surmised.
Due to a gaffe in Congress, the 100,000 MAGI limit also applies to these Roth IRA transfers, even though it was never the intent. If Congress does not fix this, she might have to wait until 2010 to do the direct rollover.
Permalink Submitted by Russell Lane on Wed, 2008-08-20 14:21
Thanks for your response. Could you clarify how the $100k MAGI limit applies to the Roth 403b rollover? Why wouldn’t it be a direct rollover like a 403b rollover would be classified rather than a transfer?
Thanks for your assistance.
Permalink Submitted by Alan Spross on Wed, 2008-08-20 19:13
The income limit only applies because of a legislative oversight when Congress drafted the tax legislation authorizing Roth employer accounts to be transferred to a Roth IRA. They failed to exempt the income limit that applies to other Roth transfers that are not regular contributions ie conversions. This should be corrected soon since it was an unintended provision. The client should not have to wait until 2010 when the income limit disppears for all Roth transfers to which it currently applies.