converting Roth 401(k) to a Roth IRA
If I am a participant in a Roth 401(k) plan, am I required to take RMDs beginning at age 70 1/2. Do I use the same formula for calculating the RMD as I would with a traditional 401(k).
If the participant doesn’t want to take RMDs, can they convert the 401(k) Roth account to a Roth IRA….and not be subject to RMD. Do all plans allow this conversion? Is there any penalty for making the conversion?
thanks
kathy
Permalink Submitted by Alan Spross on Fri, 2010-07-16 19:54
You are correct that a Roth 401k plan is subject to RMDs in the year the (former) employee reaches 70.5. For those still working, the RMDs do not have to begin until after separation from service.
For those that have separated prior to the year they reach 70.5, a transfer to a Roth IRA will eliminate the RMD. There is no penalty or tax due for this transfer. For those that are still working, even though RMDs can be delayed, if they are eligible for in service distributions they can do the transfer to the Roth IRA. This will reduce the Roth 401k balance in the plan at the time of retirement that would trigger an RMD for the year of separation. Most plans allow in service transfers at age 59.5.