Direct Rollover from Roth portion of 401k to Roth IRA

Submitted by Ray Kaufman on Mon, 2018-06-11 22:09

Hi. I have a 401k with my present employer that I have been with for 2+ years. The 401k is made up of both traditional and roth 401k money. I did a rollover from prior employer 401k to my current 401k when I started so the roth and traditional contributions started > 5 years ago at my prior employer.

I would like to do a direct rollover of 100% of the Roth portion of my current 401k to an existing Vanguard Roth IRA. I would leave the Traditional 401k money alone. Are there any gotchas or things I should be aware of.
Thanks
Ray



Submitted by Alan - IRA critic on Mon, 2018-06-11 23:30

  • Depending on the plan document and your age, you may be allowed to roll out none of the balance until you separate or reach a certain age, or you might be allowed to roll out only the designated Roth balance you rolled into the plan and their earnings. If you are not yet 59.5, you will NOT be able to roll out the Roth elective deferrals you made to the new plan.
  • When the old Roth 401k was rolled into the current plan, the old plan had to transfer the accounting status along with it. However, the 5 year holding period from the old plan does not transfer, so your Roth 401k money has the holding period of the current plan. But the rollover funds should be separated for accounting purposes from the contributions you made to the current plan. Hopefully, the new plan correctly recognized the transferred data, and will also reflect it accurately for the purposes of your direct rollover to a Roth IRA of the eligible amounts. Once the money is in your Roth IRA, you are responsible for tracking the tax status until your Roth IRA becomes qualified. This can become fairly complex and error prone, and even more so if you did any IRRs (in plan Roth rollovers) in either Roth 401k plan, since each IRR has it’s own 5 year holding period for purposes of the 10% penalty.

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