Rollover Roth IRA
Would like confirmation that I can:
(1) Rollover my after tax contributions in my old employer 401k plan to a Rollover Roth IRA and that after 5 years, withdrawals of principal and interest would be tax free, independent of my current income.
(2) Rollover the interest on my after tax contributions in my old employer 401k plan to a Rollover IRA, which will all be taxable upon withdrawal
I am already over age 60. Any other thoughts?
Thanks,
Mark
Permalink Submitted by Alan - IRA critic on Wed, 2018-08-08 19:39
You can request a split rollover per Notice 2014-54. Your entire after tax balance can be transferred to your Roth IRA and the pre tax balance to your TIRA with no tax due for the rollover. If your first Roth IRA contribution was over 5 years ago, your Roth is not fully qualified and tax free. However, if this will be your first Roth contribution, then the ordering rules will apply for 5 years. You are over 59.5, so you can withdraw the amount of the Roth rollover without tax or penalty anytime, and that money comes out before any earnings. If you needed to withdraw the earnings before 5 years, you would owe tax but no penalty on the amount of earnings withdrawn. You did not mention any other portion of the old 401k beside the after tax sub account. What about that portion of the plan?
Permalink Submitted by David Mertz on Thu, 2018-08-09 01:54
Alan meant to say that, since you are over age 59½, if your first Roth IRA contribution was over 5 years ago, your Roth IRA *is* fully qualified and any distribution made from any of your Roth IRA accounts is tax free.
Permalink Submitted by Alan - IRA critic on Thu, 2018-08-09 02:25
Good catch DMx, thanks for the typo correction.
Permalink Submitted by Mark Silvers on Thu, 2018-08-09 22:18
Thank you both. I didn’t mention my pre-tax contributions (and interest there-on) only because I didn’t have any questions on how those rollovers work.However I do have a follow-up question on the Roth IRA rollover of after tax money from a 401k plan – is there any reason why anyone shouldn’t do this, when eligiblle to do so (like at termination of employment)? If you keep it in the after tax account the future interest is taxable; if you roll the after tax contributions into a Roth IRA the future interest would be non-taxable if one can wait 5 years; if you can’t wait the 5 years, you are no worse off that if you left in the after tax account. Am I missing anything here?Thanks again.
Permalink Submitted by Alan - IRA critic on Fri, 2018-08-10 02:47
You are correct. The faster you can get your after tax contributions into a Roth IRA with no tax, the better. And you still have tax and penalty free access to the funds at any time if the rollover was non taxable. In your case being over 59.5, you would only owe tax but no penalty if you needed to tap the earnings before 5 years. If you had a prior Roth balance for at least 5 years, then your Roth is already qualified.