Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

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NeedSomeAdvice
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Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by NeedSomeAdvice » Wed Oct 17, 2018 4:26 pm

Hi all (& Alan S. in particular!),

I have a question regarding the five year rule for Roth IRA Withdrawals. My wife and I are both 33 years old.

In November 2012, I converted the following retirement funds from an old job into a single Roth IRA at Fidelity and paid taxes (with outside cash) on the applicable portions:
  • Roth 401k = $58,923 (contributions = $48,125)
    Before Tax 401k = $19,760
    Company Match (considered before tax) = $26,869
    Supplemental (considered before tax) = $2,807
Post the conversion, I held $108,359 (sum of above) in a single Roth IRA.

In April 2013, I contributed $5,000 to the same Roth IRA, and my wife contributed $5,000 to open a new Roth IRA in her name. Both contributions were made for tax year 2012. At that point we had converted or contributed a total of $118,359 to the two Roth IRA accounts. We have made no other contributions/conversions/withdrawals to either Roth IRA.

The value of my Roth IRA is currently $334,000, and the value of my wife's Roth IRA is currently $29,000.

We would like to withdraw the $118,359 in conversions/contributions tax-free and penalty-free as I believe both the conversions and contributions are considered to be at least five years ago. Can we simply withdrawal up to $118,359 tax-free and penalty-free, or do I need to worry about the breakdown of the $108,359 in terms of contributions/earnings prior to the November 2012 conversion?

Also, if we're able to withdrawal the full $118,359 tax-free and penalty-free, can I simply withdrawal those funds from my Roth IRA, or do I have to withdrawal $5,000 from my wife's Roth IRA and $113,359 from my Roth IRA?

Thanks so much for the help!

Best,
Adam

Horsefly
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by Horsefly » Wed Oct 17, 2018 6:01 pm

Your Roth 401K rollover amount still is considered to be made up of both after-tax contributions you made at work and earnings, and only the contributions can be withdrawn from the Roth IRA without penalty while you are under 59-1/2. You can't touch the part that was earnings when you did the rollover, else the penalty hits.

The rest of your conversion was a taxable event in 2012, so you paid all the taxes on them then, and I think it is all handled like a contribution from the stand-point of penalty-free non-qualified withdrawal (this is the part I'm not as sure about :?: ).

You are clearly past the 5 year rule (actually, multiple rules in this case), so no problem there.

So I think you can take the $48,125 + $19,760 + 26,869 + $2,807 + $5,000 = $102,561 from your Roth without paying any penalty. Your wife can take her 2012 contribution of $5,000 out without penalty, so your total would be $107,561.

NeedSomeAdvice
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by NeedSomeAdvice » Wed Oct 17, 2018 7:10 pm

Thanks Horsefly, that's helpful.

Regarding the Before Tax 401k ($19,760), Company Match ($26,869), and Supplemental ($2,807) accounts, there were certainly earnings included in those figures. Do you think I'm likely ok to withdraw those amounts tax-free and penalty-free because I paid tax on those full amounts back in 2012 (which I did)?

NeedSomeAdvice
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by NeedSomeAdvice » Wed Oct 17, 2018 7:11 pm

I now realize you basically asked this question of yourself and are unsure. Sorry to repeat it.

Horsefly
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by Horsefly » Wed Oct 17, 2018 7:26 pm

Yeah, I am somewhat confident that the pre-tax stuff you did a Roth conversion on would be handled as a contribution, since you paid taxes on it when you did the conversion. I'm just not certain, so I'm anxious for someone else to chime in. There are some really brilliant folks on this site, so I'm sure someone will clarify.

I kinda hate to chide you about it, but it really isn't a good idea to cash in your retirement savings at 33, unless you have lots and lots of other retirement savings besides this. I have a couple of daughters in their 20's that I am constantly pushing them to put money INTO their 401k's and Roth's, and I'd have a real talk with them if they thought about taking it back out before retirement. There, I got that off my chest.... :D

kaneohe
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by kaneohe » Wed Oct 17, 2018 7:48 pm

NeedSomeAdvice wrote:
Wed Oct 17, 2018 7:10 pm
Thanks Horsefly, that's helpful.

Regarding the Before Tax 401k ($19,760), Company Match ($26,869), and Supplemental ($2,807) accounts, there were certainly earnings included in those figures. Do you think I'm likely ok to withdraw those amounts tax-free and penalty-free because I paid tax on those full amounts back in 2012 (which I did)?
Here is the age relevant section of the kawill table for Roth withdrawals from fairmark.com

"UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD MET

Contributions: Tax-No; Penalty-No
Conversions: Tax-No; Penalty-No (Taxable Portion)
Conversions: Tax-No; Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes ;Penalty-Yes "

Your conversions on the 3 accounts mentioned above were all taxable so after you meet the 5 yr. conversion clock, there is no tax/penalty when you withdraw the conversion amounts (note that if the 5 yr conversion clock is not met, you would have paid a penalty on the conversion amount, so a conversion is different than a contribution). Your conversion amounts included earnings in the pre-tax accounts. The earnings in the table above refer to earnings in the Roth which you can not remove w/o
tax/penalty at your age.

I would await Alan. S. response to confirm but assuming Horsefly was correct about the Roth 401K , then HF's
bottom line should be correct. .....and a nice way of explaining the transfer of the Roth 401K to the Roth IRA
so I could understand the concept.......so to confirm...you didn't pay any taxes for the Roth 401K to Roth IRA
move/rollover/transfer? I guess I wouldn't call that part a conversion cuz it confuses me.

NeedSomeAdvice
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by NeedSomeAdvice » Wed Oct 17, 2018 8:52 pm

Horsefly, you're right about trying to avoid touching our retirement savings. Combined we've got about $850k, so the $118k is just a portion of it, but I hear you loud and clear. I'm not sure you'll like the excuse better, but we're using the withdrawal as a portion of the down payment on our next house. It allows us to get to 20% down and lock in much more favorable terms.

kaneohe, you're correct. We paid no tax while rolling over the $58,923 from the Roth 401k to the Roth IRA. On our 2012 tax return we filed ROLLOVER income of $108,359 with $49,436 the taxable amount (sum of the three accounts with before tax funds).

To sum, it sounds like you both agree it's very likely I can withdraw AT LEAST $107,561 tax-free and penalty-free. The question remains whether or not I can withdraw (tax-free & penalty-free) the additional $10,798 that were earnings accrued in the Roth 401k before rolling that account into my Roth IRA.

kaneohe
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by kaneohe » Wed Oct 17, 2018 9:32 pm

NeedSomeAdvice wrote:
Wed Oct 17, 2018 8:52 pm
.....................................................................
To sum, it sounds like you both agree it's very likely I can withdraw AT LEAST $107,561 tax-free and penalty-free. The question remains whether or not I can withdraw (tax-free & penalty-free) the additional $10,798 that were earnings accrued in the Roth 401k before rolling that account into my Roth IRA.
I understand IRAs a bit more than the Roth 401K since I never personally had the latter. Here's my speculation:
since you didn't pay taxes on the Roth 401K to Roth IRA (assuming not paying is correct), then the Roth 401K movement is like moving a Roth IRA into another Roth IRA so contributions remain contributions and earnings remain
earnings. If that is true, the rest of the partial table earlier shows that for youngsters, earnings are tax/penalized when withdrawn until you are are 59.5 y.o. and the oldest Roth IRA is 5 yrs. old.

Again, I would wait for Alan S. to confirm.

"OVER AGE 59.5
LESS THAN FIVE YEARS SINCE OPENING FIRST ROTH IRA

Contributions: Tax-No ;Penalty-No
Conversions: Tax-No; Penalty-No (Taxable Portion)
Conversions: Tax-No; Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes; Penalty-No

OVER AGE 59.5
FIVE YEARS OR MORE SINCE OPENING FIRST ROTH IRA

All Distributions Are Qualified
no tax/penalty"

kaneohe
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by kaneohe » Fri Oct 19, 2018 12:05 am

You may want to post your question at fairmark.com in the retirement forum where it may be more likely
to catch Alan S.'s eye https://fairmark.com/forum/

NeedSomeAdvice
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by NeedSomeAdvice » Fri Oct 19, 2018 1:45 pm

Thanks for the suggestion kaneohe. I've clicked on the link you provided, but I can't find anywhere to login in order to post my question. Am I simply missing something?

nolesrule
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by nolesrule » Fri Oct 19, 2018 2:41 pm

Earnings in a Roth 401k are still earnings when they are rolled over to a Roth IRA.

kaneohe
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by kaneohe » Fri Oct 19, 2018 3:52 pm

NeedSomeAdvice wrote:
Fri Oct 19, 2018 1:45 pm
Thanks for the suggestion kaneohe. I've clicked on the link you provided, but I can't find anywhere to login in order to post my question. Am I simply missing something?
Yes , but a bunch of us missing the same thing...........viewtopic.php?f=11&t=261791

Sorry for the false lead.......there was I thought a new version of the forum which I had posted on, and then a different looking version on which there are a handful of messages which I had never posted on and didn't realize
I didn't know how to log in either until today. Perhaps you might want to send an e-mail to Kaye as suggested by
Electron in another post here. If enough of us send that, perhaps that might get some attention.

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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by dodecahedron » Fri Oct 19, 2018 4:28 pm

This is a very confusing subject. Note that contributions are not treated the same as conversions, and there are differing rules for ¨tax free¨ vs ¨penalty free¨ distributions. Also Roth 401k rules are different from Roth IRA rules.

Michael Kitces is a generally excellent expositor and I would recommend a VERY CAREFUL reading his blog post on these issues:

https://www.kitces.com/blog/understandi ... nversions/

Do read VERY CAREFULLY. He has some discussion of examples of things that WOULD be allowed if the rules did not work the way they do but that are in fact NOT ALLOWED.

kaneohe
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by kaneohe » Fri Oct 19, 2018 8:17 pm

dodecahedron wrote:
Fri Oct 19, 2018 4:28 pm
..................................
https://www.kitces.com/blog/understandi ... nversions/

...........................................

I'll have to admit that I didn't read this link very carefully................
but did he say you have to leave Roth contributions in for 5 yrs before you can w/d w/o penalty.....at least the first contribution?

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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by grabiner » Fri Oct 19, 2018 9:26 pm

kaneohe wrote:
Fri Oct 19, 2018 8:17 pm
dodecahedron wrote:
Fri Oct 19, 2018 4:28 pm
..................................
https://www.kitces.com/blog/understandi ... nversions/

...........................................
I'll have to admit that I didn't read this link very carefully................
but did he say you have to leave Roth contributions in for 5 yrs before you can w/d w/o penalty.....at least the first contribution?
Roth contributions are never subject to tax or penalty when withdrawn. The 5-year rule applies only to the taxable part of conversions (and to earnings even if you are over 59-1/2).
Wiki David Grabiner

Miriam2
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by Miriam2 » Fri Oct 19, 2018 10:03 pm

dodecahedron wrote: This is a very confusing subject. Note that contributions are not treated the same as conversions, and there are differing rules for ¨tax free¨ vs ¨penalty free¨ distributions. Also Roth 401k rules are different from Roth IRA rules.

Michael Kitces is a generally excellent expositor and I would recommend a VERY CAREFUL reading his blog post on these issues:

https://www.kitces.com/blog/understandi ... nversions/

Do read VERY CAREFULLY. He has some discussion of examples of things that WOULD be allowed if the rules did not work the way they do but that are in fact NOT ALLOWED.
Could you perhaps, in a quick & condensed way, just list these "mishaps" so we are not led astray? If this isn't possible, we understand.

kaneohe
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by kaneohe » Fri Oct 19, 2018 10:04 pm

grabiner wrote:
Fri Oct 19, 2018 9:26 pm
kaneohe wrote:
Fri Oct 19, 2018 8:17 pm
dodecahedron wrote:
Fri Oct 19, 2018 4:28 pm
..................................
https://www.kitces.com/blog/understandi ... nversions/

...........................................
I'll have to admit that I didn't read this link very carefully................
but did he say you have to leave Roth contributions in for 5 yrs before you can w/d w/o penalty.....at least the first contribution?
Roth contributions are never subject to tax or penalty when withdrawn. The 5-year rule applies only to the taxable part of conversions (and to earnings even if you are over 59-1/2).
That was my impression too.....was just wondering if I misinterpreted what Kitces said.

I much prefer the kawill table from fairmark.com
Here's an updated version (has 1 or 2 orders of magnitude fewer words than the Kitces link and is easier to understand too)
Re: Roth IRA Rules - Table Approach
Posted by: KAWill, March 25, 2018 10:02PM
Roth IRA Distribution Table

UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD NOT MET

Contributions: Tax-No, Penalty-No
Conversions: Tax-No, Penalty-Yes (Taxable Portion)
Conversions: Tax-No, Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes, Penalty-Yes

UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD MET

Contributions: Tax-No, Penalty-No
Conversions: Tax-No, Penalty-No (Taxable Portion)
Conversions: Tax-No, Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes, Penalty-Yes

OVER AGE 59.5
LESS THAN FIVE YEARS SINCE OPENING FIRST ROTH IRA

Contributions: Tax-No, Penalty-No
Conversions: Tax-No, Penalty-No (Taxable Portion)
Conversions: Tax-No, Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes, Penalty-No

OVER AGE 59.5
FIVE YEARS OR MORE SINCE OPENING FIRST ROTH IRA

All Distributions Are Qualified

No Taxes
No Penalties

The Roth IRA Distribution Table shows the ordering rules as presented in IRS Publication 590-B.

Notes:

1) Conversions in each section come out in order of the earliest conversions first. Rollovers from employer plans other than Roth accounts should be treated as conversions.

2) Any exception to the 10% penalty for IRA distributions can waive the penalty even if under age 59.5.

3) The tables do not apply when the first home exception is listed on line 20 of Form 8606, or for return of contributions or excess contributions.

4) Any rollover balances from designated Roth accounts should be included in the correct contribution or conversion portions of these tables.

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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by grp2c » Sat Oct 20, 2018 2:26 am

I haven't been able to completely review the irs examples, but this Recapture Amount—Allocation Chart states "**Only include any contributions (usually Form 1099-R, box 5) that were taxable to you when made and rolled over to a Roth IRA." So I believe only contributions to Roth 401k prior to conversion would be able to be withdrawn tax free/penalty free prior to 59.5 and not contributions + earnings prior to conversion.


https://www.irs.gov/publications/p590b# ... 1000266521

retiredjg
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by retiredjg » Sat Oct 20, 2018 8:25 am

From Alan S. viewtopic.php?f=2&t=248580&p=3911107#p3911107
  • "When a Roth 401k balance is rolled into a Roth IRA, the new balance in the Roth IRA shifts to Roth IRA accounting. A Roth IRA distribution then follows the Roth IRA ordering rules you are probably familiar with.

    The amount of elective deferrals to the Roth 401k are shown in Box 5 of the 1099R for the Roth 401k rollover. That amount is added to your Roth IRA regular distribution balance and can come out tax and penalty free anytime. Earnings in the Roth 401k are treated as Roth IRA earnings, and they come out last subject to tax and penalty."

It appears to me you can take (penalty free) $102,561* out of His Roth IRA and she can take $5,000 out of Her Roth IRA.

The earnings that occurred in the Roth 401k prior to rollover and the earnings that have occurred in His and Her Roth IRAs since the rollover are not available without tax and 10% penalty.

*Roth 401k = $48,125
Before Tax 401k = $19,760
Company Match = $26,869
Supplemental = $2,807
Direct contribution $5,000
$102,561

+ Direct contribution to Her Roth IRA of $5,000

kaneohe
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by kaneohe » Sat Oct 20, 2018 9:14 am

retiredjg wrote:
Sat Oct 20, 2018 8:25 am
From Alan S. viewtopic.php?f=2&t=248580&p=3911107#p3911107
  • "When a Roth 401k balance is rolled into a Roth IRA, the new balance in the Roth IRA shifts to Roth IRA accounting. A Roth IRA distribution then follows the Roth IRA ordering rules you are probably familiar with.

    The amount of elective deferrals to the Roth 401k are shown in Box 5 of the 1099R for the Roth 401k rollover. That amount is added to your Roth IRA regular distribution balance and can come out tax and penalty free anytime. Earnings in the Roth 401k are treated as Roth IRA earnings, and they come out last subject to tax and penalty."

It appears to me you can take (penalty free) $102,561* out of His Roth IRA and she can take $5,000 out of Her Roth IRA.

The earnings that occurred in the Roth 401k prior to rollover and the earnings that have occurred in His and Her Roth IRAs since the rollover are not available without tax and 10% penalty.

*Roth 401k = $48,125
Before Tax 401k = $19,760
Company Match = $26,869
Supplemental = $2,807
Direct contribution $5,000
$102,561

+ Direct contribution to Her Roth IRA of $5,000
nice find! should the bolded " distribution" in Alan's quote be contribution? Is it fair to think about a move of a Roth 401K into a Roth IRA as similar to combining 2 Roth IRAs.........non-taxable, and contributions remain contributions, and earnings remain earnings?

retiredjg
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by retiredjg » Sat Oct 20, 2018 9:27 am

This Roth 401k to Roth IRA subject is very confusing to me so I have printed out a few things from Alan S over the years. It came in handy today and I learned something! I was on the verge of saying that the whole rollover would be available and it appears that is not correct.

As for contribution vs distribution, I see what you mean. In your mind the elective deferrals should go into the "contribution" pile. I think he was just saying "for distribution purposes, all this goes into the same piles in Roth IRA that it was in in the Roth 401k except some of it has now been converted." That's how I took it anyway.

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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by Electron » Sat Oct 20, 2018 12:38 pm

NeedSomeAdvice wrote:
Fri Oct 19, 2018 1:45 pm
I've clicked on the link you provided, but I can't find anywhere to login in order to post my question. Am I simply missing something?
The Fairmark forum was operational for a few days before the login problem appeared.

A good alternative for Retirement Account questions is the IRA Discussion Forum sponsored by Ed Slott and Company.

https://www.irahelp.com/forums/ira-discussion-forum
Electron

NeedSomeAdvice
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by NeedSomeAdvice » Sat Oct 20, 2018 2:02 pm

Hi all,

Thanks for the continued commentary. I was able to post on the Fairmark Forum and received the response below from Alan S. He seems to indicate that I can withdraw tax-free and penalty-free the $10,798 in earnings from the Roth 401k that were rolled into the Roth IRA:

Your Roth IRA accounting must be kept separate for each of your Roth IRAs. I wonder if your #s are correct, because the SP 500 index has doubled since Nov, 2012, but your Roth IRA has tripled. That means you have doubled the SP 500 return, which is possible but probably unlikely.

Going by your contribution info, you can withdraw 113,359 from your Roth and 5000 from your wife’s without tax or penalty.

As for the breakdown, you DO need to keep accurate records of your Roth IRA basis in order to correctly report the distributions on Form 8606. Each spouse would file an 8606 showing the amount of regular Roth contribution basis and the amount of conversion basis on separate lines. Your regular contribution basis is 63,923 and your wife’s is 5000. Your conversion basis is 49,436. The remaining balance is apparently all gains which would come out last subject to tax and penalty.

retiredjg
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by retiredjg » Sat Oct 20, 2018 5:05 pm

Hmmm. Not sure how to reconcile that with his response that I linked above.

What do you get if you actually go through the paperwork and worksheet yourself? If you take the money out, you'll have to do it eventually, might as well be now. :happy

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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by kaneohe » Sat Oct 20, 2018 7:27 pm

Not intending to steal OP's thunder but some of us have to sleep tonight and the suspense is unbearable. :happy looks like he asked Alan S. about the 2 viewpts and Alan's response was his theory was right but he erred..........easy to understand.......too many numbers running around.

"Alan S: You are correct, I misread your Roth 401k contribution amount to be 58,923 when it clearly is 48,125, which should be shown in Box 5 of your H coded 1099R for the direct rollover. Therefore, the 102,561 is correct for your Roth tax and penalty free distributions. And your regular contribution basis in your Roth IRA is 53,125. Sorry for the error.

I assumed the supplemental amount is an additional co match of some kind, was taxed when you rolled it over to a Roth IRA, and is therefore included in your Roth IRA conversion basis now.

Sorry for the error."

So thanks to OP for posting this.......learned a lot about Roth 401K into Roth IRA. Now wondering if the kawill footnote to table needs to be changed?

"4) Any rollover balances from designated Roth accounts should be included in the correct contribution or conversion portions of these tables." Should the conversion be earnings instead?

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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by retiredjg » Sun Oct 21, 2018 6:31 am

kaneohe wrote:
Sat Oct 20, 2018 7:27 pm
So thanks to OP for posting this.......learned a lot about Roth 401K into Roth IRA. Now wondering if the kawill footnote to table needs to be changed?

"4) Any rollover balances from designated Roth accounts should be included in the correct contribution or conversion portions of these tables." Should the conversion be earnings instead?
I don't think so. Conversions should not be earnings in kawill's table. This is one of those "which earnings?" questions.

If one does an in-plan Roth Rollover, the earnings that have occurred in the after-tax account would be put in the conversion category inside the Roth 401k. And I guess, according to Alan's last statement, would stay in the conversion category when rolled out to Roth IRA. But....

The earnings that occur once the money is inside the Roth 401k would not be included in either the contribution or the conversion categories even though it is part of the rollover. I don't know how to word that for kawill's table.

This is my best guess. I don't know if it is right or not.

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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by Horsefly » Sun Oct 21, 2018 8:02 am

kaneohe wrote:
Sat Oct 20, 2018 7:27 pm
Not intending to steal OP's thunder but some of us have to sleep tonight and the suspense is unbearable. :happy looks like he asked Alan S. about the 2 viewpts and Alan's response was his theory was right but he erred..........easy to understand.......too many numbers running around.

"Alan S: You are correct, I misread your Roth 401k contribution amount to be 58,923 when it clearly is 48,125, which should be shown in Box 5 of your H coded 1099R for the direct rollover. Therefore, the 102,561 is correct for your Roth tax and penalty free distributions. And your regular contribution basis in your Roth IRA is 53,125. Sorry for the error.

I assumed the supplemental amount is an additional co match of some kind, was taxed when you rolled it over to a Roth IRA, and is therefore included in your Roth IRA conversion basis now.

Sorry for the error."

So thanks to OP for posting this.......learned a lot about Roth 401K into Roth IRA. Now wondering if the kawill footnote to table needs to be changed?

"4) Any rollover balances from designated Roth accounts should be included in the correct contribution or conversion portions of these tables." Should the conversion be earnings instead?
Wow. Hopefully the OP saw the update, either here or over there.

I was really confused by his first response. But his update aligns with my first response to the OP.

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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by kaneohe » Sun Oct 21, 2018 8:23 am

retiredjg wrote:
Sun Oct 21, 2018 6:31 am
kaneohe wrote:
Sat Oct 20, 2018 7:27 pm
So thanks to OP for posting this.......learned a lot about Roth 401K into Roth IRA. Now wondering if the kawill footnote to table needs to be changed?

"4) Any rollover balances from designated Roth accounts should be included in the correct contribution or conversion portions of these tables." Should the conversion be earnings instead?
I don't think so. Conversions should not be earnings in kawill's table. This is one of those "which earnings?" questions.

If one does an in-plan Roth Rollover, the earnings that have occurred in the after-tax account would be put in the conversion category inside the Roth 401k. And I guess, according to Alan's last statement, would stay in the conversion category when rolled out to Roth IRA. But....

The earnings that occur once the money is inside the Roth 401k would not be included in either the contribution or the conversion categories even though it is part of the rollover. I don't know how to word that for kawill's table.

This is my best guess. I don't know if it is right or not.
Perhaps we're talking about 2 different things? That footnote 4) cited above refers to designated Roth account.....
I interpret that to mean Roth 401K which is similar? to a Roth IRA.

You are talking about an in-plan Roth rollover.......I don't know much for sure about qualified plans.......but that sounds to me (when you use the after-tax acct term)
like the equivalent (in IRA terms) of a non-deductible contribution (after tax) into a TIRA and then a Roth conversion....or in corp lingo.....an after-tax contribution into a traditional 401K and then a "conversion" into
a Roth 401K.....in this case, I would agree that it is a conversion for the purposes of the kawill table.

However OP didn't mention (I don't think) an after-tax contribution and conversion...........just a Roth 401K.....
so I don't see where the conversion is . Roth 401K to Roth IRA seems more like two Roth IRAs merging so contributions are contributions and earnings are earnings for the kawill table........so perhaps that table needs to have more footnotes to deal with the after tax to Roth 401K case??

retiredjg
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by retiredjg » Sun Oct 21, 2018 8:59 am

I agree the poster does not appear to have used the in-plan Roth Rollover (IRR - a form of mega back door that sends the after-tax account to Roth 401k instead of Roth IRA).

But kawill's table does include conversions and a Roth 401k could have conversion money in it if a person did an IRR or converted some pre-tax money in the traditional account to Roth 401k.


I think a Roth 401k could contain these things*:

  • direct contributions to Roth 401k (contribution)

    conversion of pre-tax elective deferrals to Roth 401k (conversion with a 5 year clock)

    rollover/conversion of after-tax account to Roth 401k (the after-tax contribution would be contributions and the earnings that were taxable would be a conversion with a 5 year clock)

    earnings that have occurred after the money got inside the Roth 401k (this is neither a contribution nor a conversion)

I think what Alan is telling us is that all of these things maintain their exact character if rolled from Roth 401k to Roth IRA. Contributions remain contributions, conversions remain conversions along with their individual clocks, and earnings remain earnings and fall to the bottom of the stack to join the earnings in the Roth IRA. These are the "earnings" that are in the kawill table.

Kawill's table accounts for contributions and conversions. It does not account for the earnings that might have occurred inside a Roth 401k before it is rolled over to Roth IRA. I doubt that was on kawill's mind at all.



*Obviously, a Roth 401k can also include rollovers from previous 401k's,but I left that out for simplicity.

Horsefly
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by Horsefly » Sun Oct 21, 2018 9:01 am

The three before-tax items that the OP mentioned had to go into the Roth IRA by way of conversion, like an traditional IRA to Roth conversion. Identical, in that (as he stated) he paid taxes on them in the year the items were moved into the Roth.

kaneohe
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by kaneohe » Sun Oct 21, 2018 9:15 am

retiredjg wrote:
Sun Oct 21, 2018 8:59 am
.....................................


I think a Roth 401k could contain these things*:

  • direct contributions to Roth 401k (contribution)

    conversion of pre-tax elective deferrals to Roth 401k (conversion with a 5 year clock)

    rollover/conversion of after-tax account to Roth 401k (the after-tax contribution would be contributions and the earnings that were taxable would be a conversion with a 5 year clock)

    earnings that have occurred after the money got inside the Roth 401k (this is neither a contribution nor a conversion)

I think what Alan is telling us is that all of these things maintain their exact character if rolled from Roth 401k to Roth IRA. Contributions remain contributions, conversions remain conversions along with their individual clocks, and earnings remain earnings and fall to the bottom of the stack to join the earnings in the Roth IRA. These are the "earnings" that are in the kawill table.

Kawill's table accounts for contributions and conversions. It does not account for the earnings that might have occurred inside a Roth 401k before it is rolled over to Roth IRA. I doubt that was on kawill's mind at all.



*Obviously, a Roth 401k can also include rollovers from previous 401k's,but I left that out for simplicity.
Hey, I got a brilliant idea! :happy Perhaps you should should propose the amendment to the kawill table. I think you got
it captured here. I think I've seen Alan S. say the same thing you said (bolded) but I didn't appreciate the conversion part until you wrote it out here.

retiredjg
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by retiredjg » Sun Oct 21, 2018 12:47 pm

Horsefly wrote:
Sun Oct 21, 2018 9:01 am
The three before-tax items that the OP mentioned had to go into the Roth IRA by way of conversion, like an traditional IRA to Roth conversion. Identical, in that (as he stated) he paid taxes on them in the year the items were moved into the Roth.
I agree. Did it seem I said something different? Or does this not apply to my comments? :happy

retiredjg
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by retiredjg » Sun Oct 21, 2018 12:50 pm

kaneohe wrote:
Sun Oct 21, 2018 9:15 am
Hey, I got a brilliant idea! :happy Perhaps you should should propose the amendment to the kawill table. I think you got
it captured here. I think I've seen Alan S. say the same thing you said (bolded) but I didn't appreciate the conversion part until you wrote it out here.
Ha! Not my place, but when we do refer to kawill's wonderful table, if there is a rollover of Roth 401k involved, we need to keep that in mind. It is something I never really "got" before.

Great thread. Learned a lot. Unfortunately, NeedsSomeAdvice needs another 10 grand or so.... :(

Horsefly
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by Horsefly » Sun Oct 21, 2018 4:39 pm

retiredjg wrote:
Sun Oct 21, 2018 12:47 pm
Horsefly wrote:
Sun Oct 21, 2018 9:01 am
The three before-tax items that the OP mentioned had to go into the Roth IRA by way of conversion, like an traditional IRA to Roth conversion. Identical, in that (as he stated) he paid taxes on them in the year the items were moved into the Roth.
I agree. Did it seem I said something different? Or does this not apply to my comments? :happy
I know I was in a hurry, but I honestly don't know what I was replying to. :oops: Maybe we can claim I was just emphasizing your point? Yeah, that's it.

retiredjg
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Re: Question Regarding Five Year Rule for Roth IRA Withdrawals (Alan S. Please Help!)

Post by retiredjg » Sun Oct 21, 2018 4:44 pm

It could have been a reply to anything in the thread, I just wasn't sure. Thought I might have said something dumb. :D

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