Roth 401(k) to Roth IRA Rollover
Roth 401(k)owner, 55, rolled over his account (roth $ only) to a newly established Roth IRA
Roth 401(k)had not satisfied the 5-year hold period at the time of the rollover. As far as
Client now want to take a distribution from the Roth IRA. What amount is considered basis? earnings? How does taxation work?
Thank you
Permalink Submitted by Alan - IRA critic on Tue, 2015-03-17 00:26
The Roth IRA distribution would follow the usual ordering rules under which all of client’s Roth IRAs are considered to be one combined account. The amount shown in Box 5 of the 1099R that reported the Roth 401k rollover is treated as regular contributions to the Roth IRA and come out tax and penalty free. However, if the client happened to have done an in plan Roth rollover within the Roth 401k, then the amount of the rollover that was taxable that is distributed from the Roth IRA before client reaches 59.5 will be subject to the 10% penalty. In other words, it is treated as if it was a Roth IRA conversion. The client therefore needs to do some accounting work in order to know if any of the Roth IRA distribution will be taxable or if any will incur the 10% penalty. If client never did an in plan Roth rollover in the Roth 401k, this will be much easier.