Roth 401k Rollover

[enginerd]

When I eventually retire...I will be rolling over my 401k that has both Roth and pre-tax. Questions:
1. Can I roll these into separate IRA accounts? (I believe the answer is, yes, if my 401k plan allows)
2. Will I be able to access the Roth contributions penalty free after the rollover?

 

[chief04010]

You must be 59 1/2 years old and the Roth account had to be open for 5 years.

 

[enginerd]

is that the answer to question 1 or 2?

 

[robertf57]

I am curious why you want to roll the 401k? Are the expenses high or the choices somehow limited? In most states there are advantages to being in the employer plan (bankruptcy protection, although hopefully this isn't too important), and at least my employer plan has almost anything I want available and with a $50 a year account fee to access nearly the universe of securities.

 

[enginerd]

Right now the 401k plan doesn't have the best fund choices. Not bad, but I'd like more freedom.

Retirement is still years away, but I'm just looking into where to put my money now so I have the best access in the future. I'm over the limits for Roth IRA, my company doesn't do after-tax 401k. I'm left with Roth 401k, pre-tax 401k or after-tax accounts. I'm currently maxing out my pre-tax 401k because I'm in a higher tax bracket, but thought maybe I should be putting money into Roth 401k if it would give me better access in the future.

I just can't seem to find the rule on Roth rollovers. I see that you can withdraw Roth IRA contributions without penalty. I just can't seem to find if the Roth 401k rollover would have that same distinction.

 

[chief04010]

is that the answer to question 1 or 2?

Answer to question 2, you answered question 1 yourself; if your plan allows it.

 

[Animorph]

I'm doing 401k/Roth 401k rollovers for DW now. I don't think rollovers count as contributions as far as early withdrawals are concerned. And the 5 year rule is always a fun one to figure out. Our timing will be such that I won't need to worry about either of those.

Post #2 was definitely for question #2. I would agree, but look it up for sure.

DW's company would only rollover into separate tIRA and Roth IRA accounts if you did the whole account at once. Wouldn't do a partial rollover into the two accounts. Instead, I'm doing partial rollovers into a Roth IRA only. Then I can recharacterize the portion of the rollover that was pre-tax (which they do list at least) into a tIRA. Without the recharacterization it's just a plain Roth conversion of the pre-tax funds, so you could also leave it that way. I couldn't figure out a similar way to roll everything into a tIRA and somehow move the after-tax part into a Roth, other than calling your broker and having them do a transfer and then somehow explaining that to the IRS.

If your company will do the split or you don't mind doing it all in one transaction (perhaps having to first go to cash and wait for it to settle), it may be much easier for you.

 

[kaneohe]

Rollovers from Designated Roth Accounts - Fairmark.com Fairmark.com

"the rules for Roth IRAs allow you to withdraw your basis tax-free even when you take a nonqualified distribution. Your basis is the amount you contributed to the designated Roth account if your rollover is a nonqualified distribution."

Note that there does not seem to be age-related restrictions.......either your age or the age of the Roth IRA..............for withdrawal of your contributions ............but there are restrictions on withdrawal of earnings.

 

[gauss]

2. Will I be able to access the Roth contributions penalty free after the rollover?

My understanding is that the Roth IRA contributions would all come out first. After that, the rollover from employer plan and /Roth conversions would come out. Only then would the potentially taxable growth come out - taxable if you were under 59 1/2 and/or did not satisfy any 5 year holding requirements that apply.

ref: IRS Pub590(a/b)

-gauss

 

[gauss]

Can I roll these into separate IRA accounts? (I believe the answer is, yes, if my 401k plan allows)

I believe this would be allowed as long as your employer properly maintains separate accounting for the Roth 401k and pre-tax 401k.

Have you read the plan document for your 401k yet?

ref:IRS Rollover Chart - Jan 2015 edition

-gauss

 

[Rothman]

I think the most important thing is the key on the 1099 should reflect it's withdraw of contribution, then no IRS issue for withdraw.


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[kaneohe]

I think the most important thing is the key on the 1099 should reflect it's withdraw of contribution, then no IRS issue for withdraw.


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Probably better to rely on yourself than the Roth IRA custodian to keep track of basis The Roth IRA Mistake

 

[enginerd]

I believe this would be allowed as long as your employer properly maintains separate accounting for the Roth 401k and pre-tax 401k.

Have you read the plan document for your 401k yet?

It's been a few years since I've looked at it, so I dug up a copy and re-read it. Nothing is really in the Plan Summary regarding rollovers for Roth. They do keep separate records for my Roth and pre-tax 401k. I can review them online (Principal is the provider)

The surprise I found was that there are only two options for distribution after I leave the company. Lump sum cash or rollover. There is no option to keep the account there and do monthly or yearly distributions when I hit retirement age(this seems odd to me). But I was planning to do a rollover anyway.

 

[enginerd]

Here's a quick summary of the FIRE plan I was exploring.

1. Retire in my mid-late 40's
2. Rollover Roth 401k and withdraw Roth contributions to make it thru the first 5 years. (I anticipate I will need Roth contributions to cover about 50% of expenses for 5 years)
3. Do Roth conversions every year in the amount of 1 year of expenses.
4. After 5 years, withdraw Roth conversions for yearly expenses.

Am I on the right track?

 

[Rothman]

enginerd, withdrawing Roth contributions and then doing Roth conversions are offsets, why not say you are living off pretax since it has same effect? The general play is use taxable in these years, but some dip into Roth to keep ACA income level then do conversions after Medicare kicks in.


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[enginerd]

enginerd, withdrawing Roth contributions and then doing Roth conversions are offsets, why not say you are living off pretax since it has same effect? The general play is use taxable in these years, but some dip into Roth to keep ACA income level then do conversions after Medicare kicks in.

Yes they are offsets...so essentially a pre-tax withdrawal without the 10% penalty. Is that correct? Is that allowed? At this point, I definitely can not save up enough in Roth or taxable to make it to medicare age. I think I'll be over by enough I will never qualify for ACA subsidies.

Most of my retirement nest egg is in pre-tax retirement accounts. It's a situation I couldn't avoid due to my employer's benefit plan (ESOP). I'm trying to make a plan to access these funds early without the 10% penalty.

It's either use a 72t or find a way to bridge the 5 year gap for Roth conversions. I'd prefer not to use the 72t because it would lock me in for a very long time (10 to 15 years). Saving up enough in taxable accounts at this point to bridge the 5 year gap is doable but expensive because I'm in the 33% tax bracket, so I'd prefer to use some of the money I already have in my Roth 401k