401(k) Roth to a Roth IRA

Submitted by Kris Loree on Thu, 2016-03-17 14:09

If a previous employer 401(k) participant rolls his/her Roth 401(k) option to a new Roth IRA, does a new 5 year
“clock” begin, or does the time in the Roth 401(k) “transfer” to the Roth IRA? Thanks for your help!



Submitted by Alan - IRA critic on Thu, 2016-03-17 16:28

  • The time in the Roth 401k does not transfer except for IRRs, rather the makeup of that Roth 401k is what transfers into the Roth IRA ordering rules. Roth 401k regular contribution total is treated as regular Roth IRA contributions, in plan Roth rollovers (IRRs which are conversions from pre tax to Roth 401k) are treated as Roth IRA conversions (5 year holding period for these continues from IRR year). Earnings are treated as Roth IRA earnings.
  • While you need to track your Roth IRA balances without the Roth 401k rollovers, when you do the Roth 401k rollover you need to integrate the rollover into your Roth IRA accounting tracking. This will allow you to determine how a non qualified Roth IRA distribution will be taxed and in addition you will need this data to complete Form 8606 reporting the Roth IRA distribution.
  • One provision to note is that if your Roth 401k is underwater because your Roth elective deferrals have lost money, is that your Roth IRA basis of regular contributions is increased by the amount you originally contributed which will be more than the value at the rollover date. This gives you more basis in your Roth IRA than using just the value on the rollover date.

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