Roth-In Plan Conversion Questions

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ronako
Posts: 17
Joined: Sat Jul 20, 2013 2:33 am

Roth-In Plan Conversion Questions

Post by ronako » Fri Jul 12, 2019 1:13 am

My employer's 401k allows me to make after-tax contributions (not pre-tax or roth contributions) combined with the ability to do daily Roth in-plan conversions to that after-tax bucket money. So basically it sounds like the after-tax money I contribute can be converted immediately to the Roth 401k with little to no tax consequences since there are no earnings on the after-tax money being converted in this case.

I normally have leftover money from my paycheck which I invest in a taxable brokerage. So my ultimate goal is to instead take that leftover money and put it in a Roth (for its tax advantages) while also wanting the flexibility of being able to take out the contribution money I made.

Assuming I do the above and keep doing in-plan conversions, am I able to withdraw this 'contribution only' money from the roth 401k anytime without penalty? Or do I need to additionally rollover the Roth 401k to a regular Roth IRA? Anything I'm missing or should be aware of?

Any help is appreciated.

BlueOrange10
Posts: 8
Joined: Sun Jun 16, 2019 9:30 pm

Re: Roth-In Plan Conversion Questions

Post by BlueOrange10 » Fri Jul 12, 2019 3:27 am

You can withdraw without penalty after 5 years upon your initial roth conversion.

Alan S.
Posts: 8473
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Roth-In Plan Conversion Questions

Post by Alan S. » Fri Jul 12, 2019 1:48 pm

ronako wrote:
Fri Jul 12, 2019 1:13 am
My employer's 401k allows me to make after-tax contributions (not pre-tax or roth contributions) combined with the ability to do daily Roth in-plan conversions to that after-tax bucket money. So basically it sounds like the after-tax money I contribute can be converted immediately to the Roth 401k with little to no tax consequences since there are no earnings on the after-tax money being converted in this case.

I normally have leftover money from my paycheck which I invest in a taxable brokerage. So my ultimate goal is to instead take that leftover money and put it in a Roth (for its tax advantages) while also wanting the flexibility of being able to take out the contribution money I made.

Assuming I do the above and keep doing in-plan conversions, am I able to withdraw this 'contribution only' money from the roth 401k anytime without penalty? Or do I need to additionally rollover the Roth 401k to a regular Roth IRA? Anything I'm missing or should be aware of?

Any help is appreciated.
When you make an after tax contribution to the 401k it is typically held in a separate sub account that is also typically considered "distributable" at any time along with any earnings in the after tax sub account. When you do an IRR (in plan Roth rollover) from the after tax sub account, the plan is supposed to segregate the accounting of your Roth 401k balance into a distributable balance and a non distributable balance. If the plan does AND does not adopt additional restrictions, you should be able to take a distribution from your Roth 401k of the distributable amounts only and roll them to your Roth IRA. But you have to ask your plan administrator if you can do this because some plans are NOT typical and have adopted limits.

That said, offering DAILY IRRs without limit seems absurdly broad. If that provision reflects the other plan provisions, you would probably be allowed to roll out the distributable Roth 401k money to your Roth IRA anytime you want. You would then be responsible to track all these contribution types in your Roth IRA so you could report the Roth IRA distribution properly on Form 8606.

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