Roth 401k Rollover Questions

[SkinsFan0521]

Hi,

I have a 401k account with an old employer that I never rolled over to my current employer. A portion of that 401k is in Roth 401k. Am I able to roll that Roth 401k money to a Roth IRA and the Traditional 401k money to the Traditional 401k of my current employer? Or does the rollover have to be all to the same destination?

The reason I'm considering doing that instead of rolling over all to my current employer is that I'd like to get the Roth 401k into my Roth IRA so it would be available for me to withdraw during ER penalty and tax free since I assume that it would be considered contributions. Am I correct in that assumption? And a related question is if the Roth 401k contributions are treated differently than the earnings once they are rolled into a Roth IRA. Is that all separated in the Roth IRA or is it all lumped into contributions when being rolled from the Roth 401k to the Roth IRA?

Thank you for any help!

 

[MarieIG]

Hi,

I have a 401k account with an old employer that I never rolled over to my current employer. A portion of that 401k is in Roth 401k. Am I able to roll that Roth 401k money to a Roth IRA and the Traditional 401k money to the Traditional 401k of my current employer? Or does the rollover have to be all to the same destination?

The reason I'm considering doing that instead of rolling over all to my current employer is that I'd like to get the Roth 401k into my Roth IRA so it would be available for me to withdraw during ER penalty and tax free since I assume that it would be considered contributions. Am I correct in that assumption? And a related question is if the Roth 401k contributions are treated differently than the earnings once they are rolled into a Roth IRA. Is that all separated in the Roth IRA or is it all lumped into contributions when being rolled from the Roth 401k to the Roth IRA?

Thank you for any help!

I see no reason why you can't do that, however, just to be cautious, I would do it as a two step process. Roll your Roth 401k into a Roth IRA, and after the dust settles, transfer the remainder into your employer 401k.

I am sorry, I did not understand the second part of the question.

 

[SkinsFan0521]

I see no reason why you can't do that, however, just to be cautious, I would do it as a two step process. Roll your Roth 401k into a Roth IRA, and after the dust settles, transfer the remainder into your employer 401k.

I am sorry, I did not understand the second part of the question.

Thank you for the response.

I guess a simpler way of asking the second part is:

How are the contributions and the gains from the Roth 401k treated once they are rolled over into the Roth IRA?

 

[MarieIG]

Thank you for the response.

I guess a simpler way of asking the second part is:

How are the contributions and the gains from the Roth 401k treated once they are rolled over into the Roth IRA?

Contributions can always be withdrawn tax free (as you already paid taxes on them) and grow is tax free so long as you follow the rules for withdrawal.

 

[MarieIG]

And here is a link to a thread (with an article) discussing withdrawals.

https://www.early-retirement.org/forums/f28/good-article-on-tax-free-roth-withdrawals-116146.html

 

[SkinsFan0521]

Contributions can always be withdrawn tax free (as you already paid taxes on them) and grow is tax free so long as you follow the rules for withdrawal.

But, when rolling over Roth 401k to Roth IRA, does it keep track of what was originally contributions into the Roth 401k vs what is gains in the Roth 401k? Or does it all get rolled over as contributions?

 

[cathy63]

But, when rolling over Roth 401k to Roth IRA, does it keep track of what was originally contributions into the Roth 401k vs what is gains in the Roth 401k? Or does it all get rolled over as contributions?

You are responsible for tracking and documenting your Roth contributions vs earnings and reporting them correctly on your tax returns when you make withdrawals. Your Roth IRA custodian has no way to track this info for you because when they receive a rollover it's just a lump sum, they don't know how much was earnings vs contributions.

If you withdraw funds from your Roth 401(k), you are allowed to treat your Roth 401(k) contributions as if they were Roth IRA contributions when you withdraw them. The earnings are still earnings. To see how this works, fill out Part III of form 8606 where you will see that it asks for the basis of your Roth IRAs. The Roth 401(k) contributions that were rolled over become part of the basis.

 

[SkinsFan0521]

You are responsible for tracking and documenting your Roth contributions vs earnings and reporting them correctly on your tax returns when you make withdrawals. Your Roth IRA custodian has no way to track this info for you because when they receive a rollover it's just a lump sum, they don't know how much was earnings vs contributions.

If you withdraw funds from your Roth 401(k), you are allowed to treat your Roth 401(k) contributions as if they were Roth IRA contributions when you withdraw them. The earnings are still earnings. To see how this works, fill out Part III of form 8606 where you will see that it asks for the basis of your Roth IRAs. The Roth 401(k) contributions that were rolled over become part of the basis.

Ok, got it. Thank you!