Roth 401(k) rollover to Roth IRA

Submitted by Robert Smith on Wed, 2018-04-04 22:31

Client is age 30; established a Roth IRA in 2015; has a 401(k) at work with approximately $50,000 in the designated Roth account and $10,000 in regular 401(k) from matching contributions; he will be changing jobs and will likely rollover the regular 401(k) to his regular IRA and the Roth piece to his Roth IRA; once it is rolled to the Roth IRA, what are the ordering rules for withdrawals from the Roth IRA prior to age 59 1/2? Is the entire $50,000 considered a rollover contribution and can be accessed prior to 59 1/2 without penalties and taxes? Or just the amount actually contributed to the designated Roth account (unknown at this time)?



Submitted by Alan - IRA critic on Thu, 2018-04-05 00:06

  • Most of the rollover can be distributed tax free from the Roth IRA. The 1099R reporting the direct rollover from the Roth 401k will show the amount contributed in Box 5. It could be more or less than the value of the rollover depending on gain or loss in the Roth 401k. This Box 5 amount is treated as if it were a regular Roth IRA contribution as the 401k money is incorporated into the Roth IRA ordering rules for distributions.
  • For example, if 40,000 is the Box 5 amount and 10,000 are gains, the Roth IRA basis of regular contributions is increased by 40,000. The gains are effectively treated as Roth IRA gains.
  • If client did any in plan Roth rollovers (IRRs), Box 5 will include the IRR amount and a more detailed breakdown is needed. These IRRs are treated as if they were Roth conversions, once in the Roth IRA. They come out after all regular contributions, oldest conversions first, and the 5 year holding requirement will apply for purposes of the 10% penalty. 
  • Client should be tracking his Roth IRA accounting status anyway, but after the Roth 401k rollover client should update the added amount of regular or conversion contribution basis. Client will need this info in order to report any non qualified Roth IRA distributions on Form 8606.

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