Understanding the penalties on a Roth IRA distribution that was rolled over from a Roth 401k
An individual in his 40’s did a direct rollover of $10k Roth 401k two years ago into a new Roth IRA. The account value is now $12k. The individual will be using the funds as a portion of a down payment on a home (not his first).
What portion of this Roth IRA can the individual access penalty free. What taxes & penalties will he pay on the rest?
Thank you.
Permalink Submitted by Alan - IRA critic on Thu, 2020-01-02 18:56
Assuming all the individual’s Roth IRAs hold ONLY this rollover, the amount they contributed to the Roth 401k (shown on the 1099R Box 5 for the direct rollover) is treated as a regular Roth IRA contribution and will be tax and penalty free. Any additional amount would be Roth IRA earnings subject to tax at their marginal rate and penalty. The 10k figure is meaningless in determining Roth IRA basis. The 1099R from 2 years back from the Roth 401k should be located to determine the amount in Box 5.