Roth 401k count toward 5 year holding period
Hi. Client had a Roth 401k, which we rolled to a Roth IRA 3 years ago. He is 61. He wants to distribute his Roth IRA. Does his Roth 401k holding period count toward the 5 year rule? Thanks.
Hi. Client had a Roth 401k, which we rolled to a Roth IRA 3 years ago. He is 61. He wants to distribute his Roth IRA. Does his Roth 401k holding period count toward the 5 year rule? Thanks.
Permalink Submitted by Alan - IRA critic on Thu, 2020-07-02 18:39
No, the holding period for qualified Roth IRA distributions only counts the Roth IRA time. That said, the client’s basis from Roth 401k contributions is treated as regular Roth IRA contributions, and therefore can be distributed from the Roth IRA anytime without tax or penalty. The Roth 401k contribution amount will show in Box 5 of the 1099R issued 3 years ago to report the direct rollover. The client needs to track this amount until his Roth IRA becomes fully qualified in 2 years when the 5 year holding requirement will be met. If he needs money now, he should just limit his distribution to that Box 5 amount shown on the 1099R and it will be tax and penalty free. Then in two more years whatever is left in the Roth IRA can also be withdrawn tax free.