Roth 401k vs. Roth IRA
If a client has been making contributions to a Roth IRA for over 5 years does that satisfy the 5 year rule for a qualified distribution from a Roth 401k? Her employer is now offering the Roth 401k and she is considering making deferrals to it.
Permalink Submitted by Alan - IRA critic on Tue, 2014-05-13 22:30
No. Client must also be 59.5 for Roth IRA distributions to be qualified. If the Roth IRA is qualified, all Roth 401k funds rolled over to the Roth IRA also become qualified, but not until rolled over to the Roth IRA. As long as the Roth 401k remains, it must also meet its own 5 year and age 59.5 requirement, and distributions directly from the Roth 401k will include a pro rated amount of earnings. If a non qualified Roth 401k is rolled to a non qualified Roth IRA, the amount of contributions to the Roth 401k are added to the amount of contributions made to the Roth IRA and this amount can be distributed tax free from the Roth IRA.