Roth 401k Basis and 5 Year Rule Roth IRA
Hi,
I have a client that is 61 Years Old, but has never created a Roth IRA. He has approximatley $170k in a Roth 401k with a basis of $113k.
If he rolls that money into a Roth IRA, is he able to maintain his basis from the 401k as his contribution basis for Roth IRA?
Also, is he able to withdrawal without taxes on the earning, since he has not satisfied the 5 year rule?
Thanks!
Permalink Submitted by Alan - IRA critic on Thu, 2025-01-23 12:24
If the first Roth 401k contribution was made prior to 2021, the Roth 401k is qualified, and the entire balance would be treated as a regular Roth IRA contribution in the Roth IRA, meaning that up to 170k could be withdrawn anytime from the Roth IRA tax free. However, if the first Roth 401k contribution was made later, the Roth 401k is not qualified, and only the 113k of basis would be a treated as regular Roth IRA contributions available tax free. The rest would be Roth IRA earnings and would not be tax free until the Roth IRA was held 5 years.
The Roth IRA would have to be held 5 years for the earnings generated in the Roth IRA itself (after the rollover) to be tax free, i.e. when the Roth IRA itself becomes qualified.