Roth 401K to Roth IRA

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NewOldGuy
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Joined: Mon Jul 30, 2018 12:37 am

Roth 401K to Roth IRA

Post by NewOldGuy »

Before officially retiring (currently 64) I worked part time at Home Depot for 6 years and invested in their standard 401K and Roth 401K. My questions regard only the Roth. I left Home Depot last year and rolled over the vested $6200 in Roth 401K to Schwab Roth IRA. I understand the 5 year rule resets, but is that only on new earnings? Because I was invested for over 5 years at Home Depot, can I withdrawal $6200 tax free or does the 5 year rule reset everything? I could have put the entire $6200 in my pocket tax free instead of starting a Roth IRA. The account is now worth $14,500.

lol.. I know these are tiny numbers by comparisons on this site, but any tax liability info would be helpful. Thanks.
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RickBoglehead
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Re: Roth 401K to Roth IRA

Post by RickBoglehead »

You can withdraw the entire $6,200 at any time. Earnings from that $6,200 are subject to the 5 year rule.
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Topic Author
NewOldGuy
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Re: Roth 401K to Roth IRA

Post by NewOldGuy »

Thank you! Nice to have a concise answer instead of trying to wade through google search.
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Eagle33
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Re: Roth 401K to Roth IRA

Post by Eagle33 »

If I am correctly reading the table at bottom of Roth IRA in wiki, OP should not owe any taxes on Roth IRA withdrawals assuming an OP Roth IRA was opened & initially funded over 5 years ago - including the earnings recently transferred from Roth401k.
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retiredjg
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Re: Roth 401K to Roth IRA

Post by retiredjg »

NewOldGuy wrote: Tue Jun 08, 2021 12:06 pm Before officially retiring (currently 64) I worked part time at Home Depot for 6 years and invested in their standard 401K and Roth 401K. My questions regard only the Roth. I left Home Depot last year and rolled over the vested $6200 in Roth 401K to Schwab Roth IRA. I understand the 5 year rule resets, but is that only on new earnings? Because I was invested for over 5 years at Home Depot, can I withdrawal $6200 tax free or does the 5 year rule reset everything? I could have put the entire $6200 in my pocket tax free instead of starting a Roth IRA. The account is now worth $14,500.

lol.. I know these are tiny numbers by comparisons on this site, but any tax liability info would be helpful. Thanks.
Your age when you did the rollover and the number of years invested in Roth 401k are important here.

Apparently you were 63ish?

And you started Roth 401k (not just 401k) more than 5 years before you did the rollover?

When did you make your first contribution to Roth IRA?

There is no general "reset" of the 5 year rule.
retiredjg
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Re: Roth 401K to Roth IRA

Post by retiredjg »

RickBoglehead wrote: Tue Jun 08, 2021 12:14 pm You can withdraw the entire $6,200 at any time. Earnings from that $6,200 are subject to the 5 year rule.
Not sure yet, but I don't think this is correct for this situation. If the Roth 401k was "qualified", then I think the Roth IRA - even if new - is "qualified". Corrected. Thanks Alan.

I'm thinking the Roth 401k was qualified.
Last edited by retiredjg on Thu Jun 10, 2021 8:25 am, edited 1 time in total.
Alan S.
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Re: Roth 401K to Roth IRA

Post by Alan S. »

retiredjg wrote: Wed Jun 09, 2021 11:54 am
RickBoglehead wrote: Tue Jun 08, 2021 12:14 pm You can withdraw the entire $6,200 at any time. Earnings from that $6,200 are subject to the 5 year rule.
Not sure yet, but I don't think this is correct for this situation. If the Roth 401k was "qualified", then I think the Roth IRA - even if new - is "qualified".

I'm thinking the Roth 401k was qualified.
It appears the Roth 401k was qualified (5 years and 59.5). That means the entire balance of the Roth 401k will be treated as regular Roth IRA contributions upon rollover and will increase whatever Roth IRA regular contribution basis there already was by 6200. Earnings generated in the Roth IRA either before or after the 6200 rollover will not be tax free until the Roth IRA itself becomes qualified.

Therefore, the entire 6200 can be withdrawn under the Roth IRA ordering rules tax and penalty free. While the 5 year requirement for the Roth IRA to be qualified remains (technically a reset if this is the first Roth IRA), it does not matter for earnings in the Roth 401k which was already qualified before the rollover since they are treated as Roth IRA basis.
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