Roth 401k rollovers

Submitted by Robert Gibb on Thu, 2023-04-20 18:20

If an individual in his 60s rolls over his Roth 401k into his new (and only) Roth IRA can he withdrawal only the Contributions from the Roth IRA…. and then wait until the 5th year to withdrawal earnings (to avoid taxes and the penalty on the earnings) ?



Submitted by David Mertz on Thu, 2023-04-20 18:26

  • If the Roth 401(k) was qualified at the time of the rollover (the 5-year requirement in the Roth 401(k) was met), the entire amount rolled over to the Roth IRA becomes contribution basis in this individuals Roth IRA.  If instead the Roth 401(k) was not qualified, the contribution basis in the Roth 401(k) becomes contribution basis in the Roth IRA, basis from In-plan Roth Rollovers becomes conversion basis in the Roth IRA and earnings in the Roth 401(k) become earnings in the Roth IRA.
  • Until the 5-year qualification period in the individual’s Roth IRA has been satisfied, any earnings in the Roth IRA are taxable if distributed.  Roth IRA distributions are subject to ordering rules under which the earnings are distributed last.  Being over age 59½, there is no penalty on taxable distributions.

Submitted by Alan - IRA critic on Thu, 2023-04-20 18:27

If the Roth 401k was qualified (held 5 years and age 59.5), then the entire amount rolled to the Roth IRA is treated as regular Roth IRA contribution basis and can be withdrawn tax and penalty free. If not qualified, only the Roth 401k contributions shown in Box 5 of the direct rollover 1099R is treated as Roth IRA basis. And either way, gains generated in the Roth IRA will be taxable if withdrawn in the first 5 years, but those gains would come out last under the Roth IRA ordering rules.

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