I was hoping someone could provide some insight into the following strategy I was considering regarding a Roth 401k conversion to a Roth IRA and future withdrawals.
A little about myself first:
1. I started my Roth IRA in 2008 and made a contribution for the 2007 year, so I'm assuming my Roth IRA's 5-year clock started in 2007.
2. In 2008 I also started contributing to my company's Roth 401k.
So, now the strategy and possible "loophole" I've read about:
Whenever I terminate employment with my company I will be allowed to rollover my Roth 401k into my Roth IRA without any issues. The rolled over funds also assume the 5-year clock of my IRA. After the 5-year clock ends (2012 in my case) I will be able to withdraw the contributions (not the earnings though) that I rolled over from my Roth 401k into my Roth IRA.
Is this too good to be true or am I missing something? It sounds like the Roth 401k is an awesome vehicle for funding my Roth IRA (especially if I ever get to the point where I can contribute the 16.5k yearly max), which allows me to withdraw contributions I made penalty free from my Roth 401k conversion. In fact, I don't see any reasons why I should even be contributing to a regular 401k until I'm mid-level or late into my career whenever my income is significant enough to warrant tax savings (I'm only 1.25 years into my career).
A little about myself first:
1. I started my Roth IRA in 2008 and made a contribution for the 2007 year, so I'm assuming my Roth IRA's 5-year clock started in 2007.
2. In 2008 I also started contributing to my company's Roth 401k.
So, now the strategy and possible "loophole" I've read about:
Whenever I terminate employment with my company I will be allowed to rollover my Roth 401k into my Roth IRA without any issues. The rolled over funds also assume the 5-year clock of my IRA. After the 5-year clock ends (2012 in my case) I will be able to withdraw the contributions (not the earnings though) that I rolled over from my Roth 401k into my Roth IRA.
Is this too good to be true or am I missing something? It sounds like the Roth 401k is an awesome vehicle for funding my Roth IRA (especially if I ever get to the point where I can contribute the 16.5k yearly max), which allows me to withdraw contributions I made penalty free from my Roth 401k conversion. In fact, I don't see any reasons why I should even be contributing to a regular 401k until I'm mid-level or late into my career whenever my income is significant enough to warrant tax savings (I'm only 1.25 years into my career).