Roth 401K rollover to Roth IRA
I have a client age 69 that retired this month that has been contributing to his Roth 401k for many years which is qualified. My question is he was still making monthly contributions to his Roth 401K until retirement, will those contributions and earnings still be tax-free after rolling over to the Roth IRA? Or does there have to be a five year wait on his recent years of monthly contributions?
Thank you
Permalink Submitted by Alan - IRA critic on Mon, 2020-11-16 17:37
Since the Roth 401k is qualified, the entire balance will be treated as regular Roth IRA contributions when rolled to a Roth IRA. If the Roth IRA is itself qualified (5 years and 59.5), then the Roth IRA along with the rolled in Roth 401k money is qualified. But if the Roth IRA has not been held 5 years, then any gains generated in the Roth IRA do not become tax free until the Roth IRA has been held 5 years. This is usually not an issue since those Roth IRA earnings come out last, after the contributions have all been distributed tax free. In other words, if the Roth IRA has already been held 5 years, the combined total account will be tax free. Form 8606 will not need to be filed to report Roth IRA distributions.