Roth 401k Rolled into a Roth IRA
I am looking to confirm that if you roll the Roth side of a Roth 401k into a Roth IRA that the portion of the rolled-in amount that is comprised of salary deferal (not earnings) is treated as contribution, and therefore, you can take it as a distribution without penalty or time limitation. The only reference I can find in the IRS code is contained is a bulletin dated 5-29-07 under question 3 of 1.408A-10 which seems to confirm this is the case.
Permalink Submitted by Alan Spross on Fri, 2010-04-16 21:44
Correct, it IS treated as a regular contribution to the Roth IRA. If the earnings in the Roth 401k are not yet qualified, those earnings are added to the earnings balance in the Roth IRA and become subject to the Roth IRA aging rules.
In fact, if your regular Roth 401k contributions have lost money, you can add the full basis to your Roth IRA regular contribution basis. For example, if you contributed 10,000 to a Roth 401k, but the account has fallen to 8,000 when you do the Roth IRA rollover, the addition to your regular contribution amounts in the Roth IRA is increased by 10,000, not 8,000. You therefore get a future benefit for that 2,000 you lost.