Client Actively Working with ROTH 403b plan at work

Submitted by Vickie Intriago on Thu, 2023-11-09 02:29

I realize that Roth 401(k) distributions are tax-free only if the account is at least five years old and the account holder is at least 59-and-a-half years old, disabled, or dead.

Do the above rules apply to a ROTH 403(b) account? Also, can client make withdrawals if he is still working and meets the above criteria?

Or, are we at mercy of the school district where client is employed?



Submitted by Alan - IRA critic on Thu, 2023-11-09 03:52

Yes, that is correct for Roth 403b plans as well. With respect to in service distributions, the plan provisions determine if they are allowed, but whether the Roth 403b is qualified or not is not a factor that affects eligibility for in service distributions.



Submitted by Vickie Intriago on Fri, 2023-11-10 18:31

In reviewing the inservice withdrawal form it mentions that there is a 20% mandatory withholding.Form treats the distribution as a taxable event.  Can the mutual fund company withhold the 20% even though it should be a tax free withdrawal?Is the other way around this transferring the 403b ROTH to a ROTH IRA account and then take the distribution? Or, must the IRA  account be held for 5 years in order for this to be a qualifed withdrawal.Client is 60 years old.



Submitted by Alan - IRA critic on Fri, 2023-11-10 18:41

The 20% mandatory withholding only applies to the taxable portion of a distribution. Since the Roth 403b contributions were post tax, the only taxable portion of a distribution would be the earnings portion, and if the Roth is qualified (5 years and 59.5) the entire distribution is non taxable and not subject to withholding. There is no need to do a rollover to a Roth IRA under these circumstances. 



Submitted by Vickie Intriago on Thu, 2023-11-16 04:21

Continuing with above thread.If the client prefers to do a direct transfer trustee to trustee to a newly opened ROTH IRA and turns around and takes a distribution from that ROTH IRA is it a qualfied Distribution?  Again he is 60 years old and the ROTH IRA will only have been open a couple of weeks. The language in the 403b distribution Plan form states maybe be subject to withholding  .  The Custodians changed from Oppenheimer to INVESCO in 2020 we are afraid that INVESCO may not realize that the ROTH 401k was opened in 2014, thus fulfilling the 5 year start date.



Submitted by David Mertz on Thu, 2023-11-16 12:37

  • Direct rollovers (code H in box 7 of Form 1099-R for a direct rollover from a Roth 403(b) to a Roth IRA) are exempt from the mandatory withholding requirement.
  • The 5-year qualification period for the Roth 403(b) does not transfer to the Roth IRA.  If the client has never had a Roth IRA, distributions from the Roth IRA would not be qualified distributions until 5 years after the beginning of the year in which the rollover to the Roth IRA is done.  For any distribution from the Roth IRA prior to that Form 8606 would have to be filed.  If the rollover to the Roth IRA is completed in 2023 and establishes the client’s first Roth IRA, that means that the client’s Roth IRAs will be qualified at the beginning of 2028.
  • If the client’s distribution from the Roth 403(b) that is rolled over to the Roth IRA is a qualified distribution from the Roth 403(b), the entire amount rolled over becomes contribution basis in the Roth IRA, otherwise only the contribution basis from the Roth 403(b) would become contribution basis in the client’s Roth IRAs.  Any earnings in the Roth IRA distributed before the end of the Roth IRA’s 5-year qualification period would be taxable.  The client is required to track the Roth IRA contribution basis.
  • You mentioned a Roth 401(k), is that what you meant to say?  If the employer simply changed custodians for their 403(b) plan, that should not affect the 5-year qualification period.  Done properly, the information about the establishment date should have been forwarded to the new custodian.


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