Roth 401(k)

Submitted by Robert Wright on Fri, 2015-10-23 00:47

Does Ed Slott have a summary of what 5 year rule applies to a Roth 401(k) balance when a 401(k) participant retires and wants to take a distribution from the Roth 401(k) or rollover his/her Roth 401(k) balance to a Roth IRA?



Submitted by Alan - IRA critic on Fri, 2015-10-23 02:05

  • When a Roth 401k is rolled to a Roth IRA, Roth IRA accounting then applies. The Roth 401k contributions are treated as Roth IRA contributions and earnings as Roth IRA earnings. But if the Roth 401k is already qualified when the rollover is done, the entire balance is treated as regular Roth IRA contributions so is effectively tax free.
  • For a distribution directly from the Roth 401k, if the account is qualified it is all tax free. If not yet qualified, then earnings are pro rated with contributions for each distribution, and the earnings portion is taxable and subject to penalty if participant is not yet 59.5.

Submitted by Robert Wright on Fri, 2015-10-23 04:44

Are these the conditions that must be met for the participant’s balance in the Roth 401k to be qualified? 

  • 1. The participant must have participated in the Roth 401k for 5 years
  • 2. The participant must be 59.5 years old

Submitted by Alan - IRA critic on Fri, 2015-10-23 18:05

Yes, those two requirements must both be met for the Roth 401k to become qualified. The age 59.5 requirement can also be met by either disability or death.

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