If employee contributions are made today to a Roth 401(k) plan and the employee terminates employment before reaching 59 1/2 years of age, what are options for the accumulated balance in the Roth 401(k)? Can the balance be transferred via direct rollover to the employee's Roth IRA, which has been in existence for more than five years? If the balances is transferred to the employee' Roth IRA, can any portion of the transferred funds be withdrawn from the Roth IRA?
You can roll/transfer it just like any other 401k.You can withdraw contributions - but for your own tax purposes, I would find out from your employer just how much of your roth 401k is contributions. IIRC, this also shows up on your W2 as well.
At separation from service, most plans will allow you to rollover your vested account balance to your IRA. For those 401(k) plans with an associated Roth componenet, you may rollover this to your Roth IRA.If you did not already have a Roth IRA established, the required 5 year holding period would begin the year you establish the Roth IRA that receives the rollover.If you already have a Roth IRA, then the rollover Roth will be comingled with existing Roth IRA and will carry the same holding period as the existing Roth IRA.You may also rollover into the Roth IRA the non-Roth portion of the Roth-401(k), which will be treated as a Roth conversion.As mentioned, you will have to receive from the 401(k) plan administrator, the portion of the rollover Roth that represents your contributions (basis). To my understanding, there is no formal recording of Roth IRA basis, just your contribution history, recorded each year on the forms 5498. With the rollover, you won't have a 5498, just a 1099-R. From page 4 of the IRS 1099-R instructions..."For a direct rollover of a distribution from a designated Roth account to a Roth IRA, enter the amount rolled over in box 1 and 0 (zero) in box 2a. Use Code H in box 7."At the point the Roth-401(k) amount is rolled over into the Roth IRA, it will be treated as a single Roth IRA, meaning basis my be withdrawn at any time and withdrawal of earnings will be treated as ordinary income and will be subject to a 10% penalty if you are not at least 59.5 or have another qualifying exception. But if your withdrawal is qualified (that is, you are at least 59.5 and you've held any Roth IRA at least 5 years), then all withdrawals will be tax and penalty free.BruceM
Thank you all for your replies! That is exactly how I anticipated it would work,
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