401(k)-Roth Rollover

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    Client is retiring at age 60 and has been contributing to the Roth portion of his 401(k) for several years with a balance of about $150K. He has never opened his own Roth. He will be transferring his employment Roth to a personal Roth he has set up to receive it. Does the 5 year holding period with his 401(k) Roth transfer to his own personal Roth, or must he wait 5 years for all distributions from it to be qualified?

    If he must wait, could he transfer the Roth from his work to a ‘rollover Roth’ so it can transfer the waiting period?

    Alan S.

    Bruce, a Roth 401k holding period does not transfer to the Roth IRA, however when the Roth 401k was qualified (5 years plus 59.5) as is the case here, the entire rollover is treated as regular Roth IRA basis and can be distributed from the Roth IRA tax free. However, for earnings generated in the Roth IRA to be qualified, the Roth IRA must be held 5 years plus age 59.5.


    Thanks Alan
    This could creates some interesting combinations. Let’s call the individual Roth ROTH-A and the 401-K Roth, ROTH-B, with the following combinations for a soon-to-retire worker >59.5…

    1. No Roth-A, Transfers Roth B with >5 year hold to newly created Roth-A. All distributions would be qualified?

    2. No Roth-A, transfers Roth-B with 3 years. When would distributions be qualified?

    3. Roth-A 3 years and transfers Roth-B with >5 years, transfers to Roth-A. When would distributions be qualified?

    4. Roth-A >5 years, Roth-B with 2 years, transfers B to A. All distributions qualified?



    Alan S.

    1) Not qualified, but tax free up to the amount rolled over from Roth B.
    2) Distributions would not be qualified until 5 years from year of rollover. Distributions would be tax free up to the amount contributed to Roth B.
    3)Distributions would be qualified in 2 years, until then distributions would be tax free up to the amount rolled into the Roth A plus amount of Roth IRA basis.
    4) Yes, entire balance qualified and tax free.

    Note that for 1 thru 3, even though the Roth IRA is not yet qualified, under the Roth IRA ordering rules, if the Roth 401k was qualified, the entire amount rolled over is immediately tax free, and if the Roth 401k was not qualified, the amount contributed to the Roth 401k is immediately tax free.

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