ROTH 401(K) ROLLOVER — (2) COMPONENTS

Submitted by ANTHONY SOKOLICH on Wed, 2021-09-15 15:22

GOOD MORNING. I RECENTLY RETIRED, AT AGE (70) AND I HAVE A ROTH 401(K). THE TRUSTEE IS “PRUDENTIAL.” BASED ON A RECENT STATEMENT THEY HAD SENT ME, IT APPEARS THAT I HAVE (2) BUCKETS OF MONEY. THE FIRST BEING MY ROTH 401(K), AND THE SECOND BEING THE COMPANY MATCH.

IT IS MY UNDERSTANDING, THAT I CAN ROLL THE ROTH 401(K) TO A SELF DIRECTED ROTH ACCOUNT WITH T.ROWE PRICE — AND THAT WOULD BE A RATHER SIMPLE ROLLOVER. THE OTHER COMPONENT WOULD BE THE “COMPANY MATCH” — WHICH I BELIEVE NEEDS TO BE ROLLED OVER TO A SELF DIRECTED TRADITIONAL IRA.

DO I HAVE MY FACTS STRAIGHT?

I WANT TO BE ABLE TO MOVE ON THIS WITHIN THE NEXT (30) DAYS. I’M SURE THAT “PRUDENTIAL” WILL LIKELY GIVE ME SOME COACHING — ON THIS TOPIC, BUT I WANTED TO TOSS THIS OUT TO THE ED SLOTT COMMUNITY FOR RESPECTIVE FEEDBACK.

ANY TYPE OF FEEDBACK HERE, IS WELCOME.

THANK YOU!



Submitted by Alan - IRA critic on Wed, 2021-09-15 16:35

Yes, you are correct. The Roth 401k balance should be directly rolled over to your Roth IRA. You might start the process at TRP, and be sure to double check your TRP account numbers to make sure you rollover goes to your Roth IRA, not to your TIRA by mistake. Doing this rollover before the year you reach 72 will avoid having to take RMDs from the Roth 401k account.
The company match is in your pre tax 401k account. For this account, you have a choice to either directly roll it to your TIRA (no tax due), or to also roll it to your Roth IRA as a conversion, and taxes will be due if you roll it to your Roth IRA. 
Prudential may or may not have their own forms for you to complete. Be sure to request direct rollovers where the checks are made out to your “Roth IRA FBO you” or “IRA FBO you” respectively. If Pru mails these checks to you for forwarding to TRP, make a copy of those checks and made sure the amounts match the type of IRA you are rolling to. It is much easier to carefully check for errors than to have an error occur and then trying to get it corrected.
If you already have a Roth IRA that is qualified (held at least 5 years in your case), the Roth 401k money will also be qualified when it is deposited to your Roth IRA. If you have not had a Roth IRA for 5 years,  it will not be qualified until that time, but you can withdraw up to the amount of your Roth 401k contributions from your Roth tax free anytime before your Roth IRA is qualified.

Submitted by Sue Shea on Thu, 2021-09-16 19:49

Hi Alan, Is rolling over from pre-tax 401k to a Roth IRA considered an IRA conversion?  If so, does it start its own 5-year clock?  If that is the case,  an in-plan ROTH 401K conversion before rolling over to a ROTH IRA would be a better choice as it doesn’t start its own 5 year clock.Thanks,Sue 

Submitted by Alan - IRA critic on Thu, 2021-09-16 20:03

Technically, a conversion is an IRA to Roth IRA transaction. A pre tax qualified plan rollover to a Roth IRA is a “qualified rollover contribution”. Both transactions have 5 year holding periods with respect to the 10% penalty (recapture tax) for distributions of the dollars rolled over, although Roth IRA ordering rules do not apply to the Roth 401k, so the plan must determine when and how much of any IRR is being distributed within the 5 year period.
When the Roth 401k is rolled over to a Roth IRA, the 8606 instructions state that IRRs are treated as regular Roth IRA contributions. If a Roth IRA Distribution is taken, there is no specified way to determine when amounts tracked as regular Roth IRA contributions come out, therefore the 5 year clock functionally ceases to exist after an IRR is rolled to a Roth IRA. You may have been referring to that situation.
An IRR also has a 5 year holding period in the Roth 40

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