One additional question:
After I rollover from after-tax 401k to Roth IRA, can I withdraw the original contribution at any time before 59 1/2 without penalty? I have had the Roth IRA for more than 5 years. I understand that the earnings would not be able to be withdrawn without penalty, but wanted to confirm about the original contribution.
Also wanted to confirm that I cannot do this with a Roth 401k if I were to choose the in-plan conversion instead. This is the primary reason I'm leaning towards the Roth IRA option, as my 401k fund selection is good.
Once in your Roth IRA, these rollovers are treated like Roth IRA conversions done in the year of the rollover. Until your Roth IRA is qualified, the usual ordering rules still apply, ie your regular Roth contributions come out first tax and penalty free. Next are conversions which come out tax free, but have a 10% penalty on the pre tax portion that is not held for 5 years. If you withdrew one of these rollovers that included a small taxable portion (earnings) before 5 years, the taxable portion of the rollover would be subject to a 10% penalty.
Alternatively, if you elected to roll your after tax contributions and their earnings into plan's Roth 401k account, these funds would be treated a little different. First, you may not be able to take a distribution at all until you separated or reached age 59.5. And if you could the Roth 401k things get complicated. A Roth 401k basically has no Roth IRA type ordering rules, but these in plan Roth rollovers do trigger some special ordering rules to non qualified distributions. The in plan rollover money is distributed first, and would therefore trigger a 10% penalty on the taxable portion of that rollover distributed before the 5 year holding period has been completed. Therefore, the ordering rule that does apply is less tax friendly than Roth IRA ordering rules.