401K withdrawls when you have both traditional and Roth funds?

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Topic Author
Straitlover
Posts: 24
Joined: Sat Jan 04, 2020 11:55 am

401K withdrawls when you have both traditional and Roth funds?

Post by Straitlover »

Before I call Prudential and sit on hold forever :), I thought I would ask here in case someone would know the answer. After I retire and start withdrawing funds form the 401K (5 or so years form now), can I specify which pot I want to withdraw from (traditional or Roth)? I didn't know if there is a rule for all 401K accounts, company specific rules or what.

I will be receiving a pension payment (state gov't employee) plus Soc Sec payment eventually, so I know that most of my SS payment will be taxable. Depending on if we ever get COLAs on the pension payment (not guaranteed, and current retirees haven't received one in several years), I may need to track any 401K withdrawals to make sure I don't bump up to a higher tax bracket, that's why I am asking. Hoping to retire at 60 (end of 2025) and will be taking SS at 62 most likely. If I have to withdraw any from the 401K between then, I will take from the traditional because I would be in a lower tax bracket (currently in 22% which I think is supposed to go back to 25% in 2025, will fall down to 12% at retirement if I don't take a part-time job); the SS payment will bump me back up.

Don't have a ton in the 401K (currently $81K, hoping to have around $175-200K by the end of 2025 if the markets don't crash (bumped up contributions in the last couple of years, now putting in $9,500/yr). I should be able to cover day-to-day expenses w/ my pension and SS; this money is for extra stuff - home/car repairs, the occasional small vacation, etc) so I won't be withdrawing every month.

TIA for your help!
retiredjg
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Re: 401K withdrawls when you have both traditional and Roth funds?

Post by retiredjg »

I expect (but don't know for sure) that is up to the plan. You could avoid any problem by just rolling the entire 401k to tIRA and Roth IRA and withdraw at your convenience.
IowaFarmBoy
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Joined: Fri Jan 22, 2010 8:19 am

Re: 401K withdrawls when you have both traditional and Roth funds?

Post by IowaFarmBoy »

At my company, I wasn't able to specify whether withdrawals were from the Roth or Traditional pot. So say I was 75% traditional and 25% Roth, if I withdrew $100, $75 would come from the traditional pot and $25 from the Roth pot. The easy workaround in my plan was to roll the Roth money to a Roth IRA. The traditional money can be left in the 401k or rolled to a traditional IRA.

That was how my company's plan worked. YMMV. I don't know whether this was specific to my company/custodian or whether it was based on IRS rules. I think you are stuck with calling Prudential and sitting on hold... :happy
SuzBanyan
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Re: 401K withdrawls when you have both traditional and Roth funds?

Post by SuzBanyan »

Rolling the Roth 401k out to a Roth IRA would also allow you to avoid RMDs from the Roth 401k beginning at age 72.
KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: 401K withdrawls when you have both traditional and Roth funds?

Post by KlangFool »

OP,

1) Rollover your 401K to IRA. Trad 401K to Trad IRA. Roth 401K to Roth IRA.

2) Do not withdraw your Trad IRA. Roth convert your Trad IRA to Roth IRA at a tax rate that are advantageous to you.

3) Spend down your Roth IRA if necessary.

4) In summary, do not withdraw your Trad IRA.

KlangFool
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IowaFarmBoy
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Joined: Fri Jan 22, 2010 8:19 am

Re: 401K withdrawls when you have both traditional and Roth funds?

Post by IowaFarmBoy »

KlangFool wrote: Tue Sep 14, 2021 3:20 pm OP,

1) Rollover your 401K to IRA. Trad 401K to Trad IRA. Roth 401K to Roth IRA.

2) Do not withdraw your Trad IRA. Roth convert your Trad IRA to Roth IRA at a tax rate that are advantageous to you.

3) Spend down your Roth IRA if necessary.

4) In summary, do not withdraw your Trad IRA.

KlangFool
I don't understand part of this advice. What is the difference between converting to Roth and then withdrawing from Roth vs just withdrawing for spending from traditional? I agree with converting as much as you can to Roth at tax rates that are good.
Last edited by IowaFarmBoy on Tue Sep 14, 2021 3:53 pm, edited 1 time in total.
IowaFarmBoy
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Joined: Fri Jan 22, 2010 8:19 am

Re: 401K withdrawls when you have both traditional and Roth funds?

Post by IowaFarmBoy »

duplicate post removed
Topic Author
Straitlover
Posts: 24
Joined: Sat Jan 04, 2020 11:55 am

Re: 401K withdrawls when you have both traditional and Roth funds?

Post by Straitlover »

I do already have a Roth IRA at Vanguard, forgot to say. Just started it in FY 2019 (opened Jan 2020 but for FY 2019), so waiting for the 5 year period to hit. I was considering rolling over the Roth 401K to it depending on how they perform between now and then (the IRA is outperforming the 401K quite a bit right now but who knows what will happen).
KlangFool
Posts: 22061
Joined: Sat Oct 11, 2008 12:35 pm

Re: 401K withdrawls when you have both traditional and Roth funds?

Post by KlangFool »

IowaFarmBoy wrote: Tue Sep 14, 2021 3:52 pm
KlangFool wrote: Tue Sep 14, 2021 3:20 pm OP,

1) Rollover your 401K to IRA. Trad 401K to Trad IRA. Roth 401K to Roth IRA.

2) Do not withdraw your Trad IRA. Roth convert your Trad IRA to Roth IRA at a tax rate that are advantageous to you.

3) Spend down your Roth IRA if necessary.

4) In summary, do not withdraw your Trad IRA.

KlangFool
I don't understand part of this advice. What is the difference between converting to Roth and then withdrawing from Roth vs just withdrawing for spending from traditional? I agree with converting as much as you can to Roth at tax rates that are good.
(2) and (3) amount does not have to match.

You may convert more or less depending on the tax rate.

KlangFool
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DSInvestor
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Joined: Sat Oct 04, 2008 11:42 am

Re: 401K withdrawls when you have both traditional and Roth funds?

Post by DSInvestor »

Will you be younger than 59.5 when you retire? 401(k) has a special provision to allow penalty free withdrawals if you retire at age 55. Traditional IRA and Roth IRA do not have this special rule. Something to watch out for if you are retiring before reaching age 59.5.
Wiki
Topic Author
Straitlover
Posts: 24
Joined: Sat Jan 04, 2020 11:55 am

Re: 401K withdrawls when you have both traditional and Roth funds?

Post by Straitlover »

DSInvestor wrote: Tue Sep 14, 2021 4:07 pm Will you be younger than 59.5 when you retire? 401(k) has a special provision to allow penalty free withdrawals if you retire at age 55. Traditional IRA and Roth IRA do not have this special rule. Something to watch out for if you are retiring before reaching age 59.5.
Not unless my sister wins us some lottery money :). 59.5 for me would be before 3/7/2024; I don't think i will have enough saved to feel comfortable by then. Current plan is to retire Dec 2025. End of November is my anniversary (11/30/2025 will be 36 years). Unless something happens, I will have plenty of vacation time, so I will probably take vacation time for 2.5 weeks, come back and work a week until right before Christmas, get my three paid holidays (12/24-26) then work 12/29-31 and ride off into the sunset. I need to calculate it if's worth it to work that Friday (1/2/2026) since Thursday would be a paid holiday. However, I need to figure out how that will effect my longevity bonus that will be included in my final compensation to calculate my pension payment.
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