Roth 401(k) conversion and rollover

Submitted by Sten Lindquist on Thu, 2020-12-03 15:41

Client is 53 years old and made a Roth conversion inside their 401(k) plan two years ago. They left their employer and want to rollover to a Roth IRA. Does the age of the conversion assets transfer over to the Roth IRA so they will be able to access the conversion assets in 3 years or does it start over? I understand the clock for the earnings is based on the Roth IRA start date but am wondering about the conversion assets clock to avoid the 10% penalty.



Submitted by Alan - IRA critic on Thu, 2020-12-03 18:07

  • This is a good question, because the IRS does not address it clearly in Pub 590 B. Per QA 12 of IRS Notice 2010-84 posted below, the 5 year aging of the IRR carries over to the Roth IRA. Therefore, 2 of the 5 year holding period has already been satisfied and the balance of 3 years will apply to the taxable portion of the IRR after the direct rollover to the Roth IRA. Basically, client will have to reconstitute his Roth IRA basis to integrate the Roth 401k basis into the Roth IRA basis. The IRR will be treated as if it was actually a Roth IRA conversion done 2 years ago.  
  • Draft date: 11-23-10 (irs.gov)

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