Roth 401k RMD's

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bethanybeachreader
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Joined: Mon Mar 12, 2018 6:55 am

Roth 401k RMD's

Post by bethanybeachreader »

I hope I didn't screw myself. My employer based 401k allows in-place transfers to a Roth 401k. I've been doing this for 5 years now, thinking that I would be reducing my RMD, saving taxes on the earnings, etc...

Now I just read that a Roth 401k is not exempt from RMD's.

So what can I do at this point? Could I open up a Roth IRA account (in Vanguard for example) and roll my Roth 401k money into the Vanguard account? Would taxes be owed? Would this get counted as income for tax purposes?
Silk McCue
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Re: Roth 401k RMD's

Post by Silk McCue »

Yes you can roll it to a Roth IRA and avoid RMDs. There will be no taxes due on that rollover and it does not count as income for tax purposes.

There are five year rules associated with Roth withdrawals that come into play. Take a look at this article for a quick education.

https://www.schwab.com/resource-center/ ... o-roth-ira

Cheers
Sasquatch1
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Re: Roth 401k RMD's

Post by Sasquatch1 »

Someone correct me if I’m wrong but..

They force you to take the RMDs but it’s not taxable income. Could either use it or just reinvest it.
MrJedi
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Re: Roth 401k RMD's

Post by MrJedi »

Sasquatch1 wrote: Wed Apr 07, 2021 9:01 pm Someone correct me if I’m wrong but..

They force you to take the RMDs but it’s not taxable income. Could either use it or just reinvest it.
Yes, but reinvestment would likely have to be in taxable account, losing the tax free growth of the Roth.

Rollover to Roth IRA is the common approach here.
Silk McCue
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Re: Roth 401k RMD's

Post by Silk McCue »

Sasquatch1 wrote: Wed Apr 07, 2021 9:01 pm Someone correct me if I’m wrong but..

They force you to take the RMDs but it’s not taxable income. Could either use it or just reinvest it.
You are correct. You simply can’t reinvest it with the same tax efficiency as it had within the Roth 401k. No RMDs is superior.

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arcticpineapplecorp.
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Re: Roth 401k RMD's

Post by arcticpineapplecorp. »

bethanybeachreader wrote: Wed Apr 07, 2021 8:35 pm So what can I do at this point? Could I open up a Roth IRA account (in Vanguard for example) and roll my Roth 401k money into the Vanguard account? Would taxes be owed? Would this get counted as income for tax purposes?
yes, roll it over to Roth IRA
No taxes owed because you already paid the tax on the money contributed (and earnings are tax free if withdrawn after 59.5 years of age.)
No not counted as income for tax purposes. You are not withdrawing, you are rolling over. When you withdraw the funds from the Roth IRA it will be listed on line 4a (IRA distributions) but not on 4b (taxable amount).
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
Alan S.
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Re: Roth 401k RMD's

Post by Alan S. »

Most people should have no problem rolling over their Roth 401k to a Roth IRA before reaching 72. That will avoid any RMDs on the Roth money.

Even if they are still working at 72 for the plan sponsor, if they complete an in service distribution prior to the year they retire, RMDs will be avoided.

There is also a largely unknown RMD rule for qualified plans with both a pre tax and Roth balance. Any RMD from that plan is allowed by the tax code to be aggregated between the two sub accounts in any portion, although some plans may not allow use of this provision.
Topic Author
bethanybeachreader
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Joined: Mon Mar 12, 2018 6:55 am

Re: Roth 401k RMD's

Post by bethanybeachreader »

Thank you everyone for their input.
retiredjg
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Re: Roth 401k RMD's

Post by retiredjg »

bethanybeachreader wrote: Wed Apr 07, 2021 8:35 pm So what can I do at this point? Could I open up a Roth IRA account (in Vanguard for example) and roll my Roth 401k money into the Vanguard account? Would taxes be owed? Would this get counted as income for tax purposes?
I'm not sure this point was clear from other responses. You can roll that Roth 401k to Roth IRA after you leave that employer. Generally, you cannot do this while still working for that employer although some allow it after age 59.5.
SuzBanyan
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Re: Roth 401k RMD's

Post by SuzBanyan »

retiredjg wrote: Thu Apr 08, 2021 2:28 pm
bethanybeachreader wrote: Wed Apr 07, 2021 8:35 pm So what can I do at this point? Could I open up a Roth IRA account (in Vanguard for example) and roll my Roth 401k money into the Vanguard account? Would taxes be owed? Would this get counted as income for tax purposes?
I'm not sure this point was clear from other responses. You can roll that Roth 401k to Roth IRA after you leave that employer. Generally, you cannot do this while still working for that employer although some allow it after age 59.5.
How does that apply to a Solo Roth 401k? Do most standard plans offered by Vanguard and the like allow rollover after 59.5? If not, what is the definition in a Solo plan of having left the employer?
retiredjg
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Re: Roth 401k RMD's

Post by retiredjg »

SuzBanyan wrote: Thu Apr 08, 2021 2:50 pm
retiredjg wrote: Thu Apr 08, 2021 2:28 pm
bethanybeachreader wrote: Wed Apr 07, 2021 8:35 pm So what can I do at this point? Could I open up a Roth IRA account (in Vanguard for example) and roll my Roth 401k money into the Vanguard account? Would taxes be owed? Would this get counted as income for tax purposes?
I'm not sure this point was clear from other responses. You can roll that Roth 401k to Roth IRA after you leave that employer. Generally, you cannot do this while still working for that employer although some allow it after age 59.5.
How does that apply to a Solo Roth 401k? Do most standard plans offered by Vanguard and the like allow rollover after 59.5? If not, what is the definition in a Solo plan of having left the employer?
A Solo 401k with Roth 401k option can certainly be rolled into Roth IRA. I don't know the answer to the other questions. However, I believe a Solo 401k is supposed to be closed (everything rolled over somewhere else) when the business ends.
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