Roth 401k Rollover RMD?
2 part question:
1. When you Rollover a Roth 401k, can you combine it with an existing Roth IRA contributory account?
2. I know that Roth 401k’s are subject to RMD’s at age 70.5, but if you roll it over to a Roth IRA after retirement, is it still subject to RMD’s?
My research has shown conflicting information on this… if you could provide source, that would be great!
Thanks,
Jon
Permalink Submitted by Alan Spross on Wed, 2011-01-05 20:57
Jon,
Yes, it can be combined with an existing Roth IRA account if desired. The funds become totally subject to Roth IRA rules where it does not matter how many different Roth IRA accounts are maintained. The only determination that must be made is how much of the Roth 401k funds are considered regular contributions and how much are considered earnings when they arrive in the Roth IRA. If the Roth 401k account was qualified, these funds are considered regular contributions in the Roth IRA, but if not then only the Roth 401k contributions will be considered as contributions and the earnings will be added to the Roth IRA earnings. If the Roth IRA account contains a conversion that might be recharacterized, then it might be better to roll the Roth 401k to a separate Roth IRA account.
If the Roth 401k is rolled over prior to the year the employee reaches 70.5, RMDs can be totally avoided. If not rolled over by then, the Roth 401k will be subject to annual RMDs, but in the year after the rollover is done, the RMDs will stop since there will no longer be a Roth 401k balance.
The rules are now going to change again since a Roth 401k can accept an in plan conversion from a pre tax 401k balance. For the first time this will create a balance of Roth 401k conversions and they CANNOT be recharacterized once converted, even if eventually rolled into a Roth IRA.
Permalink Submitted by Jon Andre on Wed, 2011-01-05 21:01
thorough response. Thanks for your time!
Permalink Submitted by Ivan Meyers on Tue, 2011-01-11 23:05
I just returned from a VITA tax training class – the IRS instructor – with many years of IRS experience – stated that in the new “tax extender” bill – passed late in December 2010 – contains the requirement for Roth IRAs to be included with ALL other IRAs for the annual RMDs after age 70 1/2.
Does anyone else have updated info on this – or just what??
Ivan
Permalink Submitted by Alan Spross on Tue, 2011-01-11 23:36
I don’t know what he is thinking, but it is incorrect.
Perhaps he is thinking about ROTH 401k accounts, which ARE subject to RMDs while the funds remain in the employer plan. But those accounts can be rolled to a Roth IRA prior to age 70.5 or prior to retirement and the RMDs are avoided. Further, this has always been the case and did not change with the Dec. 2010 tax bill.