Roth 401(k) Distribution Rule
I have a 45 yo client that does not currently have a Roth IRA. He is over the income limit to make an annual contribution. His 401(k) Plan now has the Roth 401(k) option. He is eyeing a retirement age of 59. It is my understanding that if when he separates from service he can roll the Roth 401(k) directly to a regular Roth IRA. However, it will then start the 5-year clock for tax-free distributions since he does not have an existing Roth IRA. The question is…..if he does a Roth IRA conversion from an existing Traditional IRA prior to age 54 (5 years prior to age 59 1/2) will his Roth 401(k) rollover then be eligible for the tax-free distributions at 59 1/2?
Thanks. Can follow up with any details.
Ed
Permalink Submitted by Alan - IRA critic on Thu, 2016-11-10 17:36
Yes. The Roth IRA 5 year holding period starts on Jan 1 of the year of the first contribution, whether regular, conversion or qualified rollover from employer plan. Even if he did not start a Roth IRA before the eventual rollover, after rolling over the Roth 401k, he could take tax and penalty free distributions up to the amount he contributed to the Roth 401k.