Solo 401(k)
I have a client who is contributing $20,000 in elective deferrals to his 401(k).
He is planning to contribute approximately 30K in after-tax contributions to his Solo 401(k). His plan allows for conversions to Roth. Once the after-tax contributions are converted to Roth, does he have to wait to withdrawal his funds for 5 years.
Client is 64 and does not have a Roth IRA established (until December 2023).
Permalink Submitted by David Mertz on Tue, 2023-12-12 01:04
The 5-year conversion clock only applies to those under age 59½.
Permalink Submitted by michael steinebach on Tue, 2023-12-12 15:20
So, there would be no 5 year rule applied to the earnings as well? Just wanted to confirm.
Permalink Submitted by David Mertz on Tue, 2023-12-12 15:47
The 5-year rule for qualified distributions from the Roth 401(k) is a separate rule and applies regardless of age. Each Roth 401(k) has its own qualification clock which starts on January 1 of the year in which the first Roth 401(k) contribution or In-plan Roth Rollover is made to that Roth 401(k). Until the 5-year qualification period is completed (and the individual has reached age 59½), earnings distributed are taxable. Unlike distributions from a Roth IRA, distributions from a Roth 401(k) consist of a proportional amount of basis and earnings.
Permalink Submitted by michael steinebach on Tue, 2023-12-12 16:27
Awesome. Much appreciated!