Roth 401k to Roth IRA then Distribution

Submitted by Joe Smith on Thu, 2018-01-04 02:39

I have a Roth 401k with a previous employer that I am rolling over into a Roth IRA. I then would like to withdraw all of my contributions I made to the Roth 401k (I know the amount).

I am 25 and have not had my Roth IRA open for five years (if that matters).

Is there any issues with this from a tax perspective or any other concerns?



Submitted by Alan - IRA critic on Thu, 2018-01-04 03:03

Your Roth IRA withdrawals follow certain ordering rules. All your regular Roth IRA contributions come out first, but non qualified Roth 401k money that you roll into your Roth IRA will include an amount in Box 5 of the 1099R issued to report the rollover. This is the amount you contributed to your Roth 401k, and that amount is treated as regular Roth IRA contributions once the money lands in your Roth IRA. Therefore, you could withdraw that money from your Roth IRA without tax or penalty as long as you report the distribution correctly on Form 8606.

Submitted by Joe Smith on Thu, 2018-01-04 03:08

Thanks so much for the quick reply. Can you confirm this is correct in my example: $5,000 Roth IRA contributions $2,000 Roth IRA earnings $6,000 Roth 401k contributions rolled over into Roth IRA$3,000 Roth 401k earnings rolled over into Roth IRA $16,000 now in Roth IRAthe order of withdraws is $5,000 first tax free, $6,000 next tax free, then the $2,000 and $3,000 would be subject to tax and 10% penalty? The five year rule does not apply and these contributions come out first? 

Submitted by Alan - IRA critic on Thu, 2018-01-04 03:22

  • That is right. The 11,000 of total contributions is now a single category, and the 5,000 of gains is another category. You can withdraw up to 11,000 tax and penalty free and no matter how much you withdraw 11,000 goes on line 22 of Form 8606 as your “basis is Roth IRA contributions”. The 5 years is immaterial here until you also reach 59.5. At that point your Roth IRA becomes qualified and whatever balance is left will be totally tax free. 
  • If you take out more than 11,000, any additional amounts are gains and subject to tax and penalty. Over the years you need to keep track of your accumulated total in the Roth IRA, as you might be making more future contributions. If you do, those contributions will add to your 11,000 of Roth IRA basis.

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