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Roth 401K to Roth IRA
Old 01-04-2014, 01:19 PM   #1
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Roth 401K to Roth IRA

Currently contributing to a traditional 401K and Roth IRA. Thinking about contributing some to a Roth 401K also. I would then move the Roth 401K to the Roth 401K after leaving my employer prior to age 59 1/2. Would the Roth 401K need to be open for 5 years before making this conversion? Has anyone done this with a Roth 401K? I am not very knowledgeable about a Roth 401K - does anyone have some good links?
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Old 01-04-2014, 02:55 PM   #2
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Quote:
Originally Posted by Al18 View Post
Currently contributing to a traditional 401K and Roth IRA. Thinking about contributing some to a Roth 401K also. I would then move the Roth 401K to the Roth 401K after leaving my employer prior to age 59 1/2. Would the Roth 401K need to be open for 5 years before making this conversion? Has anyone done this with a Roth 401K? I am not very knowledgeable about a Roth 401K - does anyone have some good links?
I haven't done this myself, at least not yet, but I've thought about it. You don't have to wait for five years before doing the rollover, but there are some rather peculiar rules that determine whether you have to start a new five year clock. According to the following link:

Quote:
The age of your designated Roth account doesn’t transfer to a Roth IRA when you do a rollover. This peculiar rule can work to your advantage or disadvantage.

Suppose you’ve had a Roth 401k for just a few years, but you’ve had a Roth IRA more than five years. In this case, you can satisfy the five-year test for all your money by rolling the Roth 401k to a Roth IRA.
The reverse situation is more awkward. You might have held your Roth 401k account several years without holding a Roth IRA. When you create a Roth IRA to receive the rollover from the Roth 401k, you’ll start a new five-year waiting period before you can take qualified distributions.
Five-Year Requirement for Designated Roth Accounts « Fairmark.com Fairmark.com

If I'm interpreting all this correctly, it is HIGHLY to your advantage to make sure you've held your Roth IRA for the full five year period before doing a rollover from a Roth 401k. But perhaps I'm overestimating how important this is. If you've held the Roth IRA for a few years and then do a rollover, perhaps the entire clock doesn't reset. Perhaps you just have to wait an additional couple of years until the Roth IRA meets the five year requirement.
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