Roth IRA Contributions

Submitted by Laura Hall on Mon, 2023-01-16 22:50

Hello there,
In November I rolled over a 401k employer sponsored Roth into a Vanguard Roth IRA account. The amount was around $7,000. I’ve got some extra money and was wanting to max out my Roth IRA for 2022 ($6,000). I just want to make sure I can do that and it won’t be considered an excess contribution? Thanks!



Submitted by Alan - IRA critic on Mon, 2023-01-16 23:16

You can do that because rollovers do not count as regular Roth IRA contributions. Your Roth 401k rollover is also not taxable as you will see when you get your H coded 1099R very soon. Look at Box 5 of that 1099R that will show the amount of your Roth 401k basis that you will add to your Roth IRA regular contribution basis. You need to track your Roth IRA until your Roth IRA becomes qualified, in order to complete Form 8606 if you take a Roth IRA distribution. 

Submitted by Laura Hall on Wed, 2023-01-18 22:29

The last sentence confused me.. can you elaborate please ? What do you mean by track? The 401k Roth is now a Roth IRA, not sure how I would track it? What does it qualify for? When would it qualify? Thanks!”You need to track your Roth IRA until your Roth IRA becomes qualified, in order to complete Form 8606 if you take a Roth IRA distribution. “

Submitted by Alan - IRA critic on Wed, 2023-01-18 22:51

  • Your Roth IRA is not totally tax free until it is “qualified”, meaning that you first contributed over 5 years ago and have reached age 59.5. Since you are evidently not yet 59.5 your Roth IRA is not yet qualified. So if you take a distribution from the Roth IRA you must report that distribution on Form 8606. Form 8606 asks for your balance of regular contributions on line 22 and conversions on line 24. Tracking refers to some system you have to keep up to date with these balances. You could use a manual tally sheet or a spreadsheet, and this takes very little time once you have it up to date. If you have not been keeping track, it can require considerable research to reconstruct the numbers, since Roth IRAs started in 1998. Sounds like you might never have taken a Roth IRA distribution before or you would have encountered the tracking question then.
  • When you roll a Roth 401k into your Roth IRA, you need to update your Roth IRA basis tracking. This is easy as all you have to do is increase your balance in regular Roth IRA contributions by the amount in Box 5 in the 1099R that reports the Roth 401k rollover. In other words, if that Box 5 figure is 6000, it’s as if you had made a regular Roth IRA contribution of 6000. The other 1000 of the 7000 rollover would be gains in the Roth 401k, and those become Roth IRA gains. What this does is transfers the tax accounting that your employer used to maintain for the Roth 401k to your Roth IRA, which now becomes your responsibility.
  • Of course, if you knew for sure that you would never need a Roth IRA distribution prior to 59.5 and 5 years, then you don’t have to worry about it, you can just wait until your Roth IRA is qualified before taking a distribution. 

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