Roth 401k withdraw
I am 60 years old and have a 401k plan @ work: 2/3 0f the funds are in a roth part of my 401k. I still work there and will continue for another 4 or 5 years. I would like to withdraw the roth part of my 401k and put the money in a trading account. Currently the options I have to invest are limited and high fees. I am losing money to keep funds in a mm account there. I started investing in the 401k in 2007 when it was offered. Not sure when I started the roth contributions, and not sure how to determine that. Assuming it was at least 5 years ago, are there any tax ramifications if I withdraw that amount. Get employer match of 50% up to 6% of income and have always exceeded that. Am fully vested. Would keep contributing, just as traditional pre tax 401k. Thanks for any help.
Permalink Submitted by Alan - IRA critic on Tue, 2013-01-29 04:27
Your account statements should indicate whether you have the 5 years completed but if not you can find out from the plan administrator. The first year the Roth 401k was available was 2006, and if your first contribution was prior to 2009, your Roth 401k is fully qualified right now and tax free upon distribution. But you need to determine if you are eligible to distribute this account while still in service. And if you are, I would roll it over to a Roth IRA if you want to trade. There is no benefit to distribute it into a taxable account even if the distribution was tax free. If your trades generate gains in the taxable account, you will owe annual taxes on the gains, but if you trade in a Roth IRA, all gains are tax deferred until you have had a Roth IRA for 5 years and tax free after that, and you do not report any of them on Sch D. There are no RMDs on a Roth IRA, and even if you do not have a Roth IRA right now, the rollover of a qualified Roth 401k will be treated as regular Roth IRA contributions and tax free if you ever withdraw them.
Permalink Submitted by kathy cagle on Tue, 2013-01-29 04:52
If I rolled the roth part of my 401k into a roth Ira, would the original amount I contributed be available for withdrawal without penalty or would It start another 5 year timeframe. Also would I just have the firm I wanted to set up the account do the rollover for me as they would in a conventional rollover. Thanks for your help.
Permalink Submitted by Alan - IRA critic on Tue, 2013-01-29 16:29
The original amount contributed will be treated as a regular Roth IRA contribution, meaning it can be distributed tax and penalty free at anytime. After you have maintained a Roth IRA for 5 years, then all earnings from either your Roth 401k or Roth IRA will also be tax free. Many IRA custodians will assist with your direct rollover from the 401k, but again, your plan must allow you to take distributions while still working there. Many of them do at age 59.5, but check with the plan first. Ask them if you can roll over your Roth account only. Remember that you can trade in a Roth IRA brokerage account just like a taxable brokerage account, so you would only need to take distributions from the Roth IRA if you needed them for other spending needs.