401k In-Plan ROTH Conversion then immediate rollover to existing ROTH IRA….
Hypo
A client has a ROTH IRA that has met the 5-year ageing period.
Client has a pre-tax 401k that allows for in-plan ROTH conversions.
Can the client do an in-plan conversion and immediately roll to the ROTH IRA and would the in-plan conversion be considered to have met the 5-year ageing period? Or does that have its own separate 5-year aging period like ROTH IRA conversions?
Permalink Submitted by Alan - IRA critic on Wed, 2025-05-28 16:43
If the plan allows rollovers of IRRs out of the Roth 401k to a Roth IRA, the amount of the IRR is treated as a regular Roth IRA contribution with respect to the ordering rules for Roth IRA distributions. Therefore, there would be no income tax due on such a distribution. However, the 5 year holding period for distributions to avoid the penalty will continue to apply, therefore if the client is not yet 59.5, and distributes amounts allocated to the IRR, the 10% recapture tax will be due on Form 5329. Therefore, this strategy would not result in avoiding the 10% recapture tax.