Rollover of my employer’s 401k to IRA is allowed (over age 59 1/2). I also have some money in Roth 401k, but I have to wait for a few more years for a distribution without penalty. May I roll it over to Roth IRA without penalty?
I’m guessing that your Roth 401(k) is not yet qualified because you have not yet met the 5-year rule. If you roll the Roth 401(k) over to a Roth IRA, only the amount of your contributions (and any In-plan Roth rollovers) to the Roth 401(k) become contribution basis in your Roth IRA and earnings in the Roth 401(k) will become earnings in the Roth IRA. Distributions from your Roth IRA will then be subject to the qualification rules for Roth IRAs, meaning that any earnings distributed from the Roth IRA before 5 years have elapsed from the beginning of the year for which you first made a Roth IRA contribution (including the rollover contribution) will be taxable. If this rollover establishes your first Roth IRA, that would mean that it will be longer before a distribution of earnigns would be tax free than if the funds had remained in the Roth 401(k). On the other hand, if your Roth IRAs are already qualified, rolling over to a Roth IRA would mean that earnings that came from the Roth 401(k) would be immediately distributable from the Roth IRA tax free. Distributions from the Roth IRA are subject to Roth IRA ordering rules, so earnings come out last. The establishment date of the Roth 401(k) does not carry over to the Roth IRA.
If before rolling over you wait until your Roth 401(k) is qualified, the entire amount rolled over to the Roth IRA becomes contribution basis in your Roth IRAs.
This Roth IRA was opened less than 5 years ago, but I have another Roth IRA at other investment company opened more than 5 years ago. Does the 5-year rule go by the account or by person, i.e., me?
The 5 years starts with your first Roth IRA contribution to any Roth IRA and then applies to all your other Roth IRAs. Being over 59.5, all your Roth IRAs are now qualified.
I will be terminating my solo 401k and rolling the money over. There is both traditional 401k money and roth 401k money. I currently all ready have open a “Roll over IRA” and a “Roth IRA”. For the pre-tax 401K money I was going to roll that over into the existing “Roll over IRA” (pretty straight forward). For the roth portion of the 401k money, I have the option to roll that money into my existing Roth IRA or move it into a “new” Rollover Roth IRA account. My existing Roth IRA account has been open for more than 5 years already. According to the previous reply, I would be cleared from the 5 year rule if I moved the Roth money into a “new” roth rollover IRA because my “first” Roth IRA has all ready been opened for 5 years. Is that a correct statement? Is there any advantage to rolling over the roth portion of the 401k into the existing roth ira as opposed to a new roth rollover ira? The only thing I read was keeping the roth money in two separate accounts, would potentially allow me to move that money back into another employer sponsored plan in the future. Comingling that money would possibly void that option.
Permalink Submitted by Alan - IRA critic on Thu, 2022-02-10 00:49
There is never a penalty after 59.5 when taking funds out of any plan, and never a penalty at any age for rolling funds into a Roth IRA.