Roth 5-Year Rule
An individual, age 60, has a Roth 401k which he has been contributing to for over 5 years. He wants to roll the funds over to a new Roth IRA. I know the 5 year clock starts again when the first contribution is made to the IRA; however, since it would have been a qualified distribution from the Roth 401k (by meeting the age and 5 year rule), does the total value (contributions + earnings) in the 401k become the new basis in the Roth IRA, and therefore, only earnings from the transfer date forward are subject to the 5 year rule? Or do the contributions and earnings in the 401k need to be tracked separately in the IRA as well, and the 5 year clock restarts on the 401k earnings?
Permalink Submitted by Alan - IRA critic on Fri, 2020-07-17 19:11
SInce the Roth 401k was qualified, the entire balance including Roth 401k earnings rolled into the Roth IRA is treated as regular Roth IRA contributions, able to be distributed from the Roth IRA anytime without tax or penalty. Therefore, the separate Roth IRA holding period only matters with respect to earnings generated in the Roth IRA after the rollover contribution.