Premature distribution from a Roth IRA (Rolled over from Roth 401k)

Submitted by Keith Kim on Tue, 2023-01-03 19:43

Hello,
A client rolled over her roth 401k to an individual roth in Feb 2021.
It’s been sitting in money market, so their is minimal gain.
Can she still take the principal without paying tax? or is this where the 5 year rule applies?
Also, is the “principal” the amount that was rolled over? or total roth 401k contribution amount?

Thank you!



Submitted by David Mertz on Tue, 2023-01-03 20:12

  • If at the time of the rollover the client was over age 59½ (or disabled) and had met the 5-year qualification period for the Roth 401(k) such that the distribution from the Roth 401(k) was a qualified distribution, the entire amount rolled over to the Roth IRA became contribution basis in the Roth IRA.
  • Otherwise, contributions, in-plan Roth rollovers and earnings retain their characteristics when rolled over to the Roth IRA, becoming in the Roth IRA contribution basis, conversion basis and earnings, respectively.
  • Distributions from the Roth IRA come out according to the Roth IRA ordering rules with contribution basis coming out first, no tax or penalty.

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